Property buyers in the UAE will end up paying more for their purchases as a rise in US interest rates threatens to delay a housing market rebound.
The Central Bank of the UAE swiftly raised its interest rates because of its currency peg with the US dollar after the move by the Fed to hike interest rates by 0.25 per cent late on Wednesday.
It could drive up monthly payments by as much as Dh500 a month on a mid-range villa in Dubai.
Although the increased costs are unlikely to force many property owners into the red, it comes as UAE residents are becoming increasingly squeezed by spiralling costs and await the introduction of VAT next year.
Local property brokers also predict that the rate hike, which could be followed by two more later this year, is likely to add to the growing headwinds holding back a property recovery.
“Increasing interest rates will dissuade renters from shifting into the ownership sector, extending the period that prices bobble along the bottom, before increasing again from their current low point,” said Craig Plumb, the head of research at JLL’s Dubai office.
According to the Dubai Land Department, 6,300 mortgages were granted for the purchase of existing properties in 2016, representing 34 per cent of the total number of sales, compared with 3,600 mortgages in 2011, equating to 17 per cent of sales.
“The interest rate rise is 100 per cent not going to help the Dubai property recovery,” said Matthew Green, the head of research for CBRE’s Dubai office. “On its own the quarter of a percentage point rise is not so significant but it adds to a number of local market fundamentals which are acting to depress the housing market in Dubai.”
Analysts also predict that rising US interest rates are likely to push up the value of the US dollar against other currencies. This could be particularly problematic for Dubai real estate, which is highly reliant on sales to overseas purchasers.
“The strength of the US dollar is currently the biggest barrier to people entering the Dubai market and this rise is likely to raise that barrier further,” Mr Green said.
Brokers also predict that the rise in interest rates will also affect off-plan payment plans.
These quasi-mortgages are often offered by property developers trying to sell off-plan property in the UAE. They usually require buyers to put down very small down-payments while a property is being constructed with the bulk of payment only due at completion.
“Developers of off-plan properties have responded to the previous period of market weakness by offering more attractive payment terms to attract those currently renting to buy there home,” said Mr Plumb. “These payment plans are effectively mortgages offered by developers rather than the banks. The terms of such plans are likely to be revised if interest rates continue to increase over a prolonged period of time.”
lbarnard@thenational.ae
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Killing of Qassem Suleimani
Killing of Qassem Suleimani
The Buckingham Murders
Starring: Kareena Kapoor Khan, Ash Tandon, Prabhleen Sandhu
Director: Hansal Mehta
Rating: 4 / 5
AI traffic lights to ease congestion at seven points to Sheikh Zayed bin Sultan Street
The seven points are:
Shakhbout bin Sultan Street
Dhafeer Street
Hadbat Al Ghubainah Street (outbound)
Salama bint Butti Street
Al Dhafra Street
Rabdan Street
Umm Yifina Street exit (inbound)
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
Two-step truce
The UN-brokered ceasefire deal for Hodeidah will be implemented in two stages, with the first to be completed before the New Year begins, according to the Arab Coalition supporting the Yemeni government.
By midnight on December 31, the Houthi rebels will have to withdraw from the ports of Hodeidah, Ras Issa and Al Saqef, coalition officials told The National.
The second stage will be the complete withdrawal of all pro-government forces and rebels from Hodeidah city, to be completed by midnight on January 7.
The process is to be overseen by a Redeployment Co-ordination Committee (RCC) comprising UN monitors and representatives of the government and the rebels.
The agreement also calls the deployment of UN-supervised neutral forces in the city and the establishment of humanitarian corridors to ensure distribution of aid across the country.
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