The introduction of value added tax (VAT) in the UAE from next month will provide major new incentives for institutional investors to enter the Dubai real estate market, according to the head of one of the country’s largest brokerages.
Firas Al Msaddi, CEO of fäm Properties, believes that the new level of transparency in real estate transactions brought about by the introduction of VAT will provide a vital extra incentive to institutional investors.
From January 1, 2018, the new 5 percent VAT Law will be applied to all products and services in the UAE, unless exempted or zero rated by federal law, and Al Msaadi said he is confident that Dubai real estate will benefit from a more open and clear system in which to invest.
“When you consider the audit related implications of VAT across almost every industry and particularly in real estate, combined with the government initiatives of open source data, the market becomes increasingly attractive to global players,” said Al Msaddi.
“I’ve spoken to numerous fund managers in Geneva, London and other major financial hubs in recent months and they have all indicated that VAT will have a positive impact on the market here and they expect renewed interest in investment opportunities as a result.”
According to the Dubai Land Department, 217 nationalities invested a total of AED151 billion in Dubai’s real estate market between January 2016 and June 2017 and Al Msaddi forecasts a surge of activity from the start of 2018 from sovereign wealth funds, regional asset managers, pension and insurance companies.
“If the new laws help to improve the ethics and integrity around the real estate market in general, that can only be seen as a positive step in my mind, and institutional investors from around the world will take notice of this new system.
“There have obviously been initial concerns about VAT increasing costs for developers, brokerages, landlords and the end user, however, it will not directly affect the sale or rental price of residential properties, but it will have an indirect effect on the market as a whole.”
Al Msaddi added: “If we calculate the current registration fee of 4% for one unit, on average, is AED54,000 and for a building or villa is AED101,000, with the additional 5% VAT applied to registration costs, the average person will pay an extra AED2,700 for a unit transfer and AED5,000 for a building or villa transfer.”
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