New municipality rental taxes of up to 7.5%

Abu Dhabi residents could see an increase in municipality fees under new plans that have been outlined by the emirate’s Executive Council. The move would only affect non-Emiratis and could help to boost property sales, as measures have been introduced to encourage home ownership in the past few months.

A circular from the Executive Council, which was seen by The National, has set out plans to increase the fee from 3 per cent for residential properties only.

The extent of the increase is not yet clear, but different rates could be applied for villas and apartments. It is also unclear if or when the higher rates will be introduced, but the law is already in effect.

The move follows the introduction of the 3 per cent charge to the value of an annual rental contract for tenants in Abu Dhabi last year. Emiratis are exempt.

The municipality fee was originally announced in February 2016 and was collected through Abu Dhabi Distribution Company bills.

Funds gathered through the fee go towards municipality use.

It is the latest in charges that have been introduced as the country seeks to diversify from oil and gas to a knowledge-based economy.

VAT at 5 per cent was imposed from January 1, while a 100 per cent tax on cigarettes and 50 per cent charge on energy drinks was brought in last October.

The most recent figures from the Statistics Centre Abu Dhabi show that consumer prices rose by 2.7 per cent in the first three months of this year, compared with the same period in 2017.

Experts say any fee rise could lead to a further reduction in rents over the short term and could boost property sales.

“Tenants only have so much to spend on rent so it means they will spend that much less,” said Ben Crompton, managing partner of Crompton Partners.

“It will put more pressure on rents as soon as it comes in because people will be bargaining harder with their landlords and trying to find this money elsewhere.

“Either they downsize to save that money or they bargain harder to get the rent dropped so they are not paying any extra.”

Data compiled by the property website shows residential rents in Abu Dhabi fell by as much as 22 per cent during the first three months of the year.

Mr Crompton said landlords were working harder than ever to attract and retain tenants, so this move should elicit a reaction from them. If the fees for villas are greater than apartments, it is believed their rent prices could come down even more.

“If villas are charged at a higher rate, then people will have a decision between an apartment and a villa and will choose an apartment,” he said.

“So landlords of villas will have to be more aggressive about rent to attract tenants. It will put more pressure on rents in villas than apartments.”

Imran Ellam, senior residential consultant at BespokeAD, said people could now be more selective in what is already a tenants’ market.

“They could use it as a negotiating tool,” Mr Ellam said.

As for sales, the same Bayut report said there was renewed interest in off-plan properties in Abu Dhabi this year.

This comes as the UAE announced plans to introduce visas of up to 10 years for experts working in the medicine, science, research and technical fields.

Also included are foreign investors establishing a business. This could, in theory, have more people thinking about buying a home here.

“This doesn’t apply to homeowners,” Mr Crompton said. “So if you were thinking about buying now could be the time because you won’t be subject to this municipality fee.”

Originally published on The National on 28/05/2018

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