VAT to increase costs for real estate investors: Survey

A survey of local investment professionals across the GCC region reveals that real estate is likely to become a costlier investment following the implementation of value-added tax (VAT), in January 2018.
The survey assessed the views of the CFA society members in the United Arab Emirates, Bahrain and Kuwait. 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.
Other findings showed that over half (54 per cent) of CFA Society members surveyed believe that retail investors will be impacted more than institutional investors from the rollout of VAT, with only 4 per cent stating that institutional investors would face greater impact. Additionally, a majority of the investment professionals surveyed 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.
Amer Khansaheb, CFA, President of CFA Society Emirates, commented on the findings saying: “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.”
Amer Khansaheb said: “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. 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 under way, the GCC will continue to remain a market of opportunity for the investment community.