UAE- Watch out for indirect VAT costs on property deals

With value added tax (VAT) kicking in today, end-users in Dubai are confused whether to advance their property purchases or to continue paying rents and wait for sales prices to bottom out.

As per VAT regulations, developers enjoy a zero rate on all residential sales within three years of completion of a project. Any home sale done after those three years will come under VAT. However, residents need to watch out for the indirect costs arising from property transactions.”There will be no direct effect of VAT on unit costs as prices of new residential sales is zero rated and residential leasing is exempted. Nevertheless, indirect costs coming from the ancillary processes of transactions and construction will have an inflationary effect on the final prices over time, that we estimate to be from three per cent to five per cent. Services in the building life cycle such as acquisition services, mortgage charges, construction and property management, maintenance charges, etc., are expected to see a more direct effect from VAT,” says David Godchaux, CEO of Core Savills.

Market experts call for caution and remind buyers that there were similar concerns when the Dubai Land Department doubled transfer fees on property transactions from two per cent to four per cent in 2013. Such short-term blips are unlikely to affect buying behaviour.”Markets adjust to these transaction levies and the reality is that even after VAT, UAE levies on real estate are very competitive when compared to the developed world,” says Hussain Alladin, head of IR and research at Global Capital Partners. With attractive property prices and generous payment plans from developers, Dubai appears to be on course for increasing end-user ownership levels and that trend is likely to continue, regardless of VAT. Meanwhile, for those sitting on the fence waiting for prices to bottom out, it will be wise to defer your decision no longer.

“Whether Dubai property prices have bottomed out or not depends upon the location and individual development as there are varied drivers affecting sales prices in different communities and districts. Generally, we expect further room for softening, particularly in areas witnessing a spike in new and off-plan launches in the lower market segment as competition by a few developers on low pricing are pulling the area averages down and sometimes dampening recovery of the re-sale market as well,” adds Godchaux.Some experts believe a turnaround is on the horizon, with green shoots appearing in certain communities such as the Palm Jumeirah and Jumeirah Village Circle since the beginning of the year.”Given the supply and demand dynamics at play, investors should not expect double digit returns this time around, but a slow and steady recovery as fundamentals play themselves out,” says Alladin.

Deepthi Nair I cover all things related to real estate in the UAE. Working as a print journalist in Dubai since 2008, I have reported on all the flashy new projects in town. Dubai’s passion for setting new records continues to amaze me. I love to do stories that strike a chord with the average expatriate in the UAE. If you have any news related to your community or rents, you know who to get in touch with at Khaleej Times. When I am not working, I travel, catch up with friends, mall trawl, catch up on movies, explore new places in town or just unwind in a spa. Originally from India, I have been a journalist for more than 11 years. Language has been my forte right from school. That’s me in a nutshell

Source:http://menafn.com/1096294403/about.html

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *