The Possible Effect Of Value Added Tax On Egyptian Real Estate

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Value Added Tax On Egyptian Real Estate

Egypt’s move to introduce Value Added Tax (VAT) has been praised by the IMF as a step in the right direction. It is expected that VAT will increase inflation by 1% and reduce the budget deficit by 1-3%. Whilst real estate is one of the 56 areas exempt from the tax, there is a possibility that VAT will have an indirect effect on parts of the Egyptian Real Estate and  property market.

The 13% VAT (14% in 2017) will replace the current Sales tax, set at 10%. This may have an impact on the wallet of the consumer which could in turn impact the ability of the retail tenant to pay rent. The extra 3-4% will not make a great deal of difference to the weekly shop but could impact the purchase of luxury items such as electronics and designer brands. Less spending could put downward pressure on the retail property market as landlords struggle to maintain current occupancy levels.

It’s too early to state with confidence what impact VAT will have on Egyptian real estate but the increase in revenues could boost infrastructure spending, which in turn could raise property prices. Higher prices as areas improve coupled with less income to make property investments could restrict the movements of the poor to middle classes. But, with more money to spend the government could invest in new homes for residents.

VAT is expected to help the Egyptian government improve its ability to collect taxes, something it has historically struggled with in rural areas and the tourism sector. The overall effect on the economy long term is expected to be positive with concessions being made short term to aid with the transition. Whilst we expect the VAT to be implemented in October, there will be a grace period of three months to help merchants and services adjust to the new normal.

 

This post is also available in: Arabic

Craig Plumb

Author: Craig Plumb

Craig has over 20 years’ experience providing clients with quality advice on real estate market conditions in the UK, Asia Pacific and the Middle East. With a background in urban economics and spatial planning, he has particular expertise in the areas of property market research, development consultancy, transport related infrastructure projects and corporate real estate.

Since moving to the UAE in 2006, Craig has authored over 50 research reports on different aspects of the MENA real estate market. He has also provided market research and consulting services to major investor, developer and government clients and has appeared as an independent real estate expert before the Dubai International Arbitration Centre (DIAC).

Craig holds a Bachelor of Arts in Economics & Geography from Lancaster University and an M.Phil in Environmental Planning from Reading University (UK).

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1 Comment
    • smmusersmmuser
    • 01/11/2016

    Very informative…

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