VAT to increase costs for Gulf real estate investors, says CFA survey
The cost of real estate investment in the region is likely to climb on the back of VAT introduced across the Gulf from next year, a survey of local investment professionals found.
With VAT set to be applied on the first sale of properties, 87 percent 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 assessed the views of investment experts certified by the Chartered Financial Analyst (CFA) society members in the UAE, Bahrain and Kuwait.
A further 54 percent of the 140 CFA society members surveyed online between September and October believed that retail investors will be hardest hit by the new taxes introduced in Jan. 2018.
The majority of international investors are not being swayed by the introduction of VAT, with only 18 percent reacting negatively, respondents said.
Global investors should remain undeterred by the new tax laws said CFA President Amer Khansaheb.
“The concerns regarding VAT in the region is largely one of perception rather than policy,” said Khansaheb.
“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,” he added.
With the government revenue streams generated with the new tax, liquidity levels in the market are expected to improve; which should increase investor confidence and appetite, he added.
VAT a boon for Gulf markets
Creating a more regulated environment with greater financial transparency should be a positive development since this is the model in developed economies, Khansaheb said.
“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.”
The GCC continues to be an attractive investment hub on a number of fronts especially as Saudi Arabia postures itself for inclusion on the US-based MSCI index provider.
“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,” Khansaheb added.
Around 37 percent of respondents said their companies were readying for the new tax, while 25 per cent reported being ‘unprepared’ for VAT implementation in January 2018.
A further 22 percent said that their firm has made the necessary preparations for the new era of taxes.