UAE developers ‘stockpiling materials ahead of VAT’

Builders are starting projects quickly and ordering materials early to avoid VAT surcharge from 2018 – report

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Developers in the UAE with projects already underway have begun placing orders for building materials they will need only after construction is complete, as a way of avoiding any VAT-related costs.

By placing orders now and receiving the goods before the year end, the developers will not have to factor in the 5% additional surcharge that will come into effect from 2018, an industry source said, in a report by Gulf News.

“This is happening even with projects that are only at the beginning stage,” said Mohammad Mustafa, managing director of Emsquare Engineering Consultants. “If they place the orders now for categories such as ceramics, doors, ironmongery, pay and have them delivered, the developer makes sure those VAT charges do not apply for their existing project. As such, it will mean quite a difference between what it will cost them now and the likely expenses from 2018.

“But any project coming after three months will feel the impact of VAT and will need to factor in the increased costs and related overheads.”

The last three quarters have seen a rush of projects put out for tendering, particularly in Dubai. Project developers have also been quick to announce contractors and start work on site.

Industry sources added that VAT has been a major factor in their cost equations, as moving quickly also puts developers in a stronger position to start placing orders on what these projects will require after completion.

While the bulk of building material categories are seeing price stability, it is not yet certain whether developers bringing forward their orders will put pressure on commodity prices.

“All VAT-related material costs must be paid by the developer… this is being strictly enforced in new contractual terms by the contractors,” said Mustafa. “They have issued notices to all parties in the last three months. Developers will need to do some preparatory work on managing their costs after VAT gets implemented. There will be a steep learning curve.”

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