VAT could hit UAE property market in 2018

Significant new supply in Dubai could also dampen the market in the run up to 2020, according to JLL

The UAE property market faces a potential reduction in activity and performance at the start of the year due to uncertainties surrounding a recently introduced 5 per cent value added tax and new supply, according to consultancy JLL.

In an end of year report, the company said the real estate sector continued to adjust to lower growth being the new normal as economic activity slowed from a historic average of 4.1 per cent to 1.7 per cent in 2017.

Despite the weaker market conditions, the last year still saw significant sales activity in the commercial and residential sectors with four major official and assets with a combined value of more than $340m sold last year to institutional investors.

Residential activity was also supported by a surge in off plan sales thanks to attractive prices and payment plans offered by developers.

There were 25,600 off plan sales in Dubai alone last year, the highest level seen since 2008, according to the company.

“The UAE real estate industry is entering into a transitional phase, with VAT now in effect and key stakeholders seeking to decipher its immediate and longer term impact,” said Craig Plumb, head of research at JLL MENA.

“Although VAT does not apply to residential rents and sales of new residential property, other real estate sectors could be negatively impacted by increased costs and cash flow challenges.”

The company said there was an increased level of new units due to enter the Dubai market in 2018 and 2019, which could result in an oversupply situation, while activity remained more constrained in Abu Dhabi.

Dubai

In the Dubai residential market, JLL said there were signs of confidence returning but the number of new launches was significantly below activity levels seen in 2006-2007 and sales volumes were below levels seen in 2013/2014.

Sales and rents declined over the year but slowed in the fourth quarter to an average decline of 1.6 per cent. However, new supply is expectedto see prices and occupancy levels continue adjusting downwards.

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