The Impact of Increasing White Land Fees to 10% in Selected Riyadh Districts on Real Estate Valuation and Financing

Following the announcement by the Ministry of Municipal and Rural Affairs and Housing regarding the implementation of a 10% White Land Fee on specific zones in Riyadh as part of the new phase of the system, several practical challenges have emerged for property valuers, financing institutions, and landowners. The most notable include:

• A decline in recent transactions within certain affected districts.

• A widening expectation gap between sellers and buyers.

• Increased uncertainty in determining fair market value.

This development falls under the White Land Fees system, originally introduced through regulatory frameworks associated with the Royal Commission for Riyadh City and the former Ministry of Housing, aiming to stimulate development and increase real estate supply.

How to Professionally Address the Absence of Recent Transactions

1) Expanding the Geographic Scope of Comparables

When recent transactions within the same district are unavailable, reference may be made to comparable neighborhoods sharing similar characteristics, such as:

• Zoning and permitted land use

• Urban density

• Infrastructure and service levels

• Target demand segment

Clear and well-justified adjustment factors should be applied and documented within the valuation report.

2) Applying Multiple Valuation Approaches

Reliance solely on the sales comparison approach is insufficient. Reports should be strengthened through:

• Residual Land Value Method, estimating land value based on projected feasibility after deducting:

  • Development costs

  • White Land Fees

  • Financing costs

• Income Approach, where potential future returns can reasonably be projected.

Diversifying methodologies enhances the credibility of the final value, particularly before financing entities.

3) Analyzing the Economic Impact of the 10% Fee

Raising the fee to 10% alters the investment decision equation by:

• Increasing pressure on owners to either develop or divest.

• Repricing risk in financial models.

• Potentially causing short-term liquidity slowdown while improving long-term supply dynamics.

Incorporating this economic analysis into the valuation report strengthens the defensibility of the assessed value despite limited transactions.

4) Leveraging Official and Regulatory Data

Valuations may be supported by referencing:

• Approved geographic zoning maps

• Fee classifications (10% – 7.5% – 5% – 2.5%)

• Official data on land areas subject to fees

• Building regulations issued via the Balady platform

These regulatory parameters provide an objective foundation for determining fair value.

5) Transparent Documentation of Assumptions

Every assumption used in the valuation must be:

• Technically justified

• Supported by market analysis

• Explicitly disclosed in the report

Transparency reduces objections and enhances value acceptance by lenders and corporate stakeholders.

6) Utilizing Multiple Value Scenarios

Instead of presenting a single figure, it is advisable to provide a value range:

• Conservative Scenario: Assumes continued weak demand.

• Base Case Scenario: Reflects current market equilibrium.

• Optimistic Scenario: Assumes accelerated development response to the fee.

This approach aligns with best practices in risk management within financial institutions.

7) Collecting Qualitative Market Intelligence

In the absence of quantitative transaction data, qualitative insights gain importance, including:

• Interviews with local brokers

• Engagement with developers

• Analysis of purchase inquiries

• Monitoring actual listing activity

8) Accurately Accounting for Development Costs and Risks

Valuation should properly reflect:

• The impact of White Land Fees

• Expected development timelines

• Financing costs

• Planning and infrastructure risks

All of these elements form part of the realistic market value of land.

Executive Summary

Despite limited transactions and subdued demand following the fee decision, professional valuers can maintain valuation accuracy by:

• Diversifying valuation methodologies

• Expanding the data base

• Analyzing the economic impact of the fee

• Applying multi-scenario valuation models

• Ensuring transparent documentation of assumptions

At this stage, valuation is no longer merely a price comparison exercise; it is a comprehensive investment analysis reflecting regulatory changes, embedded risks, and forward-looking market expectations.