Being a VAT consultant, our clients raises their concerns over the introduction of VAT and its “domino affect” on property prices as it may dent customers purchasing power. However, I believe the Government has designed the law after giving sufficient consideration to the property sector. One example of that is supply of “bare” or unimproved land will be exempt from VAT.
From the point of view of a developer/buyer of residential properties, since the land department is already charging a certain percentage on the purchase of properties and to avoid further strain on them, the law declared the “first time” supply of these residential properties within three years of completion of completion, for both rental or purchase as zero rated where as the residential leases or any purchase of residential property from a “first time” purchaser as exempt. Given that the developers will be able to recover its input VAT, they will not pass the burden to the buyer or lessor. Hence, we can expect that there will be hardly any VAT impact on residential real estate pricing.
However, the commercial property rent will attract VAT which again can be claimed by the businesses as their VAT input tax.
An increase of 5% price by way of VAT can make a reasonable impact on property prices but on the other hand this can help ease the boom bust cycles which can be tremendously disturbing.
