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Financial research report / investment bank analysis (merrill lynch gems paper)
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Summary
This document is a page from a Merrill Lynch research report titled 'GEMs Paper #26' dated June 30, 2016. It analyzes the economic impact of a new land tax in Saudi Arabia, estimating potential government revenue of US$11 billion per year and detailing costs and KPIs for the National Transformation Plan (NTP). The document bears a 'HOUSE_OVERSIGHT' Bates stamp, indicating it was produced during a House Oversight Committee investigation, likely related to financial records involving Saudi Arabia.
Organizations (11)
Timeline (2 events)
Locations (6)
| Location | Context |
|---|---|
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Dammam
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Key Quotes (3)
"Tax on land: a lever to lower real estate prices in urban areas"Source
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Quote #1
"Land tax could generate up to US$11bn/yr from the major urban cities"Source
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Quote #2
"Ultimately, this would improve household affordability, reduce social tensions and indirectly tackling energy subsidies"Source
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Quote #3
Full Extracted Text
Complete text extracted from the document (2,473 characters)
Tax on land: a lever to lower real estate prices in urban areas
Given that the government is giving landlords a grace period in order to either develop or sell land to developers, we perceive the newly approved land tax as a lever to lower real estate prices. Ultimately, this would improve household affordability, reduce social tensions and indirectly tackling energy subsidies as it frees up potential household income to spend on electricity and gasoline.
Given that the government is giving landlords a grace period in order to either develop or sell land to developers, we perceive the newly approved land tax as a lever to lower real estate prices. Ultimately, this would improve household affordability, reduce social tensions and indirectly tackling energy subsidies as it frees up potential household income to spend on electricity and gasoline.
Land tax could generate up to US$11bn/yr from the major urban cities
We estimate that the government could potentially collect up to US$11bn per annum of tax related to undeveloped land in the top 5 urban Saudi cities which accommodate more than 50% of the Saudi population. While the law will not be effective until end-2016, we do not expect the tax proceeds to be significant early on.
We estimate that the government could potentially collect up to US$11bn per annum of tax related to undeveloped land in the top 5 urban Saudi cities which accommodate more than 50% of the Saudi population. While the law will not be effective until end-2016, we do not expect the tax proceeds to be significant early on.
Table 20: Land tax proceeds estimates for the 5 major urban cities
Land tax could generate up to US$11bn per annum in first phase
City Selected urban land area (sqm) White land value (SARbn) Annual Land tax proceeds @ 2.5% (SARbn)
Riyadh 1,300,000,000 494 12.4
Jeddah 1,686,000,000 481 12
Mecca 850,000,000 485 12.1
Medina 293,000,000 88 2.2
Dammam 200,000,000 48 1.2
Total 4,329,000,000 1,595 39.9
Source: SAMA, BofA Merrill Lynch estimates for white land and proceeds
Land tax could generate up to US$11bn per annum in first phase
City Selected urban land area (sqm) White land value (SARbn) Annual Land tax proceeds @ 2.5% (SARbn)
Riyadh 1,300,000,000 494 12.4
Jeddah 1,686,000,000 481 12
Mecca 850,000,000 485 12.1
Medina 293,000,000 88 2.2
Dammam 200,000,000 48 1.2
Total 4,329,000,000 1,595 39.9
Source: SAMA, BofA Merrill Lynch estimates for white land and proceeds
Table 21: NTP objectives and KPIs affecting the real estate sector
Strategic objective KPI Unit Baseline 2020 target Regional b'mark Int'l b'mark
Ministry of Housing
Enable citizens to obtain a house Real estate sector contribution to GDP % 5 10 13 20
Improve performance of real estate sector Average time required to license new residential new projects Day/ Permit 730 60 44 26
Enable citizens to obtain a house Housing unit cost multiples of gross individual annual income x 10 5 6.7 3
Enabling citizens to obtain suitable housing financing Real estate financing to non-oil GDP % 8 15 16 75
Source: Saudi National Transformation Plan
Strategic objective KPI Unit Baseline 2020 target Regional b'mark Int'l b'mark
Ministry of Housing
Enable citizens to obtain a house Real estate sector contribution to GDP % 5 10 13 20
Improve performance of real estate sector Average time required to license new residential new projects Day/ Permit 730 60 44 26
Enable citizens to obtain a house Housing unit cost multiples of gross individual annual income x 10 5 6.7 3
Enabling citizens to obtain suitable housing financing Real estate financing to non-oil GDP % 8 15 16 75
Source: Saudi National Transformation Plan
Table 22: NTP government costs related to the consumer and real estate sectors
Consumer SAR (000)
Ministry of Economy and Planning 3,293,255
Ministry of Commerce and Industry 4,313,050
Ministry of Environment, Water and Agriculture 13,942,405
Ministry of Haj and Umrah 333,600
Ministry of Labor and Social Development 7,931,710
Total 29,814,020
Consumer SAR (000)
Ministry of Economy and Planning 3,293,255
Ministry of Commerce and Industry 4,313,050
Ministry of Environment, Water and Agriculture 13,942,405
Ministry of Haj and Umrah 333,600
Ministry of Labor and Social Development 7,931,710
Total 29,814,020
Real Estate SAR (000)
Ministry of Housing 59,166,666
Source: Saudi National Transformation Plan
Ministry of Housing 59,166,666
Source: Saudi National Transformation Plan
66 GEMs Paper #26 | 30 June 2016
Merrill Lynch
HOUSE_OVERSIGHT_016176
Merrill Lynch
HOUSE_OVERSIGHT_016176
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