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Drop in House Rents Soften VAT Impact in UAE
Although the levy of a 5 percent value-added tax (VAT) was expected to affect UAE residents in the form of increased living costs, the reduction in house rents has offset this impact to a great extent.
While global benchmarks suggest that households should allocate no more than 35 percent of their total monthly income on housing (in the form of either rents or mortgage payments), many families in Dubai currently spend over 40 percent of their combined income on rents.
“Tenants are definitely experiencing increasing higher living costs. It is, therefore, good news that rents continue to fall [by around 10 percent over the past 12 months]. This should help address the problem where accommodation costs in Dubai are generally too high,” says Craig Plumb, head of research, JLL Mena.
“Although the introduction of 5 percent VAT at the beginning of the year had an impact on overall costs for residents, this was more or less offset by reduced rents. This is mainly caused by an increased supply, employment challenges and the movement of tenants from one emirate to another seeking the best value for money,” observes John Stevens, managing director, Asteco.
Most of the UAE residential market has absorbed VAT’s limited inflationary impact in 2018. However, there has been an impact on residents’ disposable incomes.
“Dubai’s real estate market is heavily sentiment-driven and the introduction of VAT across Dubai has undoubtedly had a negative effect on this. It is more likely that it is the change in sentiment that may cause tenants to behave more cautiously. However, it is still too early to know with any degree of certainty,” suggests Thomas Bolton, Cluttons’ director – strategic projects.