Real estate in the GCC is likely to become a costlier investment following the implementation of value added tax (VAT) in January 2018, a survey of regional CFA Societies.
The survey assessed the views of 140 CFA members in the UAE, Bahrain and Kuwait online between September and October.
With VAT set to be applied on the first sale of properties, 87 per cent of investment professionals said that some or all of the additional expenses incurred by real estate firms will be passed on to investors.
The survey also found that 54 per cent of the respondents believe retail investors will be impacted more than institutional investors from the rollout of VAT, with 4 per cent stating that institutional investors would face a greater impact.
The majority of those surveyed also indicated that their international business partners are not being deterred by the introduction of VAT, with only 18 per cent saying that this is creating a negative reaction from them.
In the UAE, the finance ministry has said that the first sale of new residential property in the country will be subject to zero rate of VAT.
Meanwhile supplies of commercial property – both sales and leasing – will be subject to the standard rate of VAT, which has been fixed at 5 per cent.
Amer Khansaheb, president of CFA Society Emirates, said: “The concerns regarding VAT in the region is largely one of perception rather than policy. While it is true that certain areas of the economy will witness marginal higher costs being incurred, this should not deter regional and international investors in a significant way.
“Additionally, with the government revenue this will generate, liquidity levels in the market are expected to improve, which should increase investor confidence and appetite.”
Once implemented, VAT is expected to provide additional revenues amounting to 1.5 to 2 per cent of GDP in regional economies. In the UAE alone, the tax is expected to generate approximately Dhs12bn in its first year of introduction.
The tax is also anticipated to create around 5,000 finance and accounting jobs across the Gulf region.
“In the eyes of investors, creating a more regulated environment with greater financial transparency should be a positive development since this is the model in developed economies,” said Khansaheb.
“Given that taxation at higher rates is a norm around the world, the GCC will continue to be attractive as average tax rates are lower than almost all other major markets.
“With regional financial markets expanding, the potential MSCI inclusion for Saudi Arabia, investment in commercial infrastructure and economic diversification programmes underway, the GCC will continue to remain a market of opportunity for the investment community,” he added.