Saudi Arabia's bold measures to stabilise the real estate market, including the amendment of the Idle Land Tax law, providing subsidised land plots in Riyadh, are expected to increase supply and price normalisation, says an Alrajhi Capital research.

 

The year 2025 so far has been an eventful year for the Saudi Arabia’s real estate market. It all started with directives issued by the government, late March, setting up the stage for reforms within the sector. 

 

These directives include an increase in the supply of land in the North Riyadh (restricted 81.48 sq km) and to provide 10,000-40,000 land plots to Saudi nationals every year with a capped price of SAR1,500/sq m (RCRC launched a platform to accept applications on September 11, 2025). 

 

Later in July, the cabinet approved the foreign ownership law, allowing non-Saudi nationals to own the property in the designated areas. However, the REGA is yet to announce the designated zones permitted for ownership.

 

In August, the government announced amendments in the Idle Land Tax law, introducing zone-wise tax slabs on the Idle land within the urban boundaries of Riyadh, ranging between 0-10%. The recent amendments also broaden the scope to include ‘Vacant Property’ related tax up to 5% of the value of the property with specific regulations to be issued within a year.  

 

Why these measures? 

The simple answer is to address the demand-supply gap, mainly in Riyadh. For the context, Riyadh residential prices have increased substantially vs. other key geographies like Jeddah and Dammam. 

 

According to data from Knight Frank, villa and apartment prices in Riyadh have increased by 48% and 87%, respectively, since the end of 2020. Similarly, the rental index has jumped 32% since the end of 2021, showing strong demand. 

 

What’s next?

* REGA to announce zones for foreign ownership, 

* Likely update on rental cap, and 

* Regulations related to vacant property.

 

Sector performance 

The real estate activity in 2Q25 dropped 22% y-o-y and 41% q-o-q, the lowest level in the last nine quarters. This is mainly due to participant waiting for further clarity on the law and consequent price normalisation.

 

The Tadawul Real Estate sector index is down 23% since the beginning of April 2025, after having a decent rally of almost 70% during 2023-1Q25.

 

In our view, the new developments are positive for the sector in the medium-to-long term. These initiatives should contain the speculative or artificially inflated prices in some areas in Riyadh and increase affordability.

 

On the other hand, the landowners with sizable land bank would look for opportunities to collaborate with development funds and kick-start the land development. Moreover, the likely interest rate cuts should act as a tailwind in case of demand revival, the report said.

 

Sectors with second-order impact

* Cement, and Building & Construction.

* Banks (mortgages) and real-estate development funds.

 - TradeArabia News Service