DUBAI 28 August 2017: Home prices and rentals are expected to head south in 2018, according to Sultan Al Mansoori, UAE Minister of Economy.
This is however, likely to dampen the inflationary pressure expected from the introduction of Value Added Tax (VAT) from the beginning of next year.
There is to be a two-fold impact of VAT, Al Mansoori told The National in an interview carried by Wam.
Below are the two relevant excerpts:
Q: What is the outlook for inflation next year vs this year?
The expectation of stable world commodity prices is tempered, and we expect a decline in housing prices and rents as supply levels rise with the entry of new units and demand slows due to rising inflation levels.
According to a report issued by the Federal Authority for Competitiveness and Statistics on the state’s Consumer Price Index for 2016 with respect to the prices of the most expensive and important groups in the consumer basket, housing, water, electricity and gas rose by 3.57 per cent over 2015 due mainly to the rise in the prices of maintenance materials, accommodation, rent and water.
Q: How will VAT and excise tax impact the economy?
The UAE intends to apply the VAT system to all production and service sectors starting from January 2018 at a rate of 5 per cent, with education and health sectors and a list of 100 food commodities to be exempted. The expected economic and social impacts of VAT in the UAE include the following:
Implications of VAT on individuals: The cost of living is expected to rise slightly, but will vary depending on the individual’s lifestyle and spending behaviour. If their expenditures are focused primarily on goods excluded from VAT, for example, there will be little increase in the cost of living.
Social Implications of VAT: Imposing VAT will help increase revenue sources in isolation from oil revenues, which will increase the state’s ability to continue to provide educational, health and public utility services and to finance public spending on these services to ensure they are of the highest international standards and specifications.