MANAMA: Real estate is likely to become a costlier investment across the GCC region following the implementation of value-added tax (VAT), reveals a survey of local investment professionals.
The survey assessed the views of CFA society members in the UAE, 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 (54pc) of CFA Society members surveyed believe that retail investors will be impacted more than institutional investors from the rollout of VAT, with only 4pc 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 18pc saying this is creating a negative reaction from them.
Commenting on the findings, CFA Society Bahrain president Mahmoud Nawar 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.”
“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,” added Mr Nawar.
“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.”
Respondents also indicated that their companies are either in the process of getting ready (37pc) or unprepared (25pc) for VAT implementation in January 2018; with 22pc saying their firm has made the adequate preparations for VAT implementation.