DOHA: Sales of off-plan properties in the UAE are expected to see a temporary downturn after authorities confirmed the new value-added tax (VAT) would be applied to the first sale of a residential property.
In a briefing with tax advisors, the UAE Ministry of Finance (MoF) said residential property sales and leases would be exempt from VAT, with the exception of the first sale of new residential property. Sales and leases of commercial properties will be taxed at the standard VAT rate. The UAE has said it will implement VAT from January 1, 2018.
In Dubai, the country’s most active real estate market, VAT is the latest measure to affect the first sale of a residential property.
During the emirate’s real estate boom leading up to 2008, new projects were sold off-plan within hours of being bought, in a process called ‘flipping’.
The rapid on-sale of properties became rampant, artificially inflating prices, until the property bust in 2009-10. In recent years, the UAE Central Bank has sought to control the problem by allowing first home buyers to borrow up to 75 percent of the property value.
In 2013, the Dubai Land Department doubled its property registration fee to 4 percent of the sale value in another move designed to limit flipping and contain price volatility.
“VAT on the first sale of new residential property will not in itself stop flipping, but it can damper the practice by marginally reducing primary market demand and removing some upward price potential for secondary market buyers,” Phidar Advisory managing director Jesse Downs told Arabian Business.