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More Jobs, Lower Rents with Saudi Arabia's New Expat Tax: Analysts

Saudi Arabia, August 7, 2017

The new expat dependent tax, which is SR1,200 for every member this year and SR2,400 next year, has forced many foreign families to leave the Kingdom and this in turn has brought down housing rents by 10 to 20 percent, experts said.

They explained positive and negative aspects of the tax, which came into effective July 1, adding that it would create more job opportunities for Saudis.

Realtor Khaled Barasheed said the exodus of expatriates following the imposition of new tax would make many housing units vacant, especially in neighborhoods having low-cost housing facilities. The departure of foreigners will create more job opportunities for Saudis in the private sector, where 90 percent workers are now expats, he added.

“The fall in rents will encourage more young Saudis to get married,” he told Al-Watan Arabic daily. The Housing Ministry’s move to construct more housing units would prompt Saudis to think about having own houses instead of renting flats and villas,” he explained.

The percentage of home ownership is likely to increase from 47 to 52 percent by 2020. “The implementation of the ministry’s Ejar system will definitely bring down prices,” Barasheed said. The Ejar system is likely to start in August. “Once the experimental operation is over, application of the system will become mandatory for those who give their properties for rent or those who rent homes and buildings as well as middlemen,” an informed source said.

The system will enable realtors to know the demand and supply and if there is any fall or increase in demand to take investment decisions. It will also serve investors to know the correct information about real estate market. The Housing Ministry will be able to know the rent rates over the years.

Economist Walid Fahd Al-Otaibi said the new system would bring about financial and market changes in the coming two years.

“During this period a number of companies that are not financially competent will leave the market while some others will make gains,” he told Al-Watan.

The prices of certain goods and services that are directly related to expats would go up slightly, Al-Otaibi said. Companies will have the choice of either deporting expats or increase prices to meet production cost as a result of new tax.

The departure of foreign women will increase employment opportunities for Saudi women from 23 to 28 percent by the year 2020, he said.

“It will also bring down unemployment rate from 9 to 6.11 percent,” Al-Otaibi said. Saudi Arabia holds 18th position in unemployment rate among the G20 countries. Saudis represent only 17 percent in private sector jobs while their salaries account for 45 percent of the total.

He said the new expat tax would impact 20 percent of house rents, 44 percent accessories business, 38 percent of services such as electricity and telecom and 34 percent of private foreign schools.

Naif Al-Khalifa, another economist, said the new tax would contribute to bringing about a dramatic change in the Kingdom’s job market, creating more job opportunities for Saudis, especially highly qualified and skilled graduates and post graduates.

“It coincides with the government’s move to increase the Saudization rate at private firms and will bring down unemployment rate among Saudis, realizing objectives of Vision 2030,” Al-Khalifa told Al-Watan.

The move will close down a number of suspicious firms that do not follow the Kingdom’s regulations and will open wide opportunities for new Saudi investors, he said while stressing the need to conduct feasibility studies before starting new ventures by young Saudi men and women.

Financial analyst Ali Al-Jaafari said the present stagnant situation of the real estate market would not benefit investors as well as those who want to build homes or rent flats, adding that the tax would put pressure on limited income groups.

Khaled Al-Mabeed, a realtor said the tax would increase real estate prices in underdeveloped residential areas by 10 percent due to the rise in demand for low-cost housing.

albawaba