Dubai serves to be one of the most prominent players when it comes to real estate business. Equipped with unique designs, the ground is inclined towards innovation and uniqueness. The Government of UAE has been taking numerous steps to invite foreign investors to invest in the real estate business. The ground acts as a platform for new as well as established businesses covering entrepreneurs and experienced professionals under the same roof.
One core service that is demanded by the Government of Emirates is to manage a proper book of accounts which needs to follow the International Accounting Standards (IAS). If you are the owner of a real estate business or is planning to set-up one, it will help you if you hold an idea regarding the real estate accounting. This guide will provide you with the essentials of real estate accounting for your business.
Real Estate Industry in Dubai
The UAE Real Estate Sector comes with significant developments, initiatives and projects in its basket. Currently, the real estate market prices have been declined which attract more investors to invest in the market. Another factor that drives the real estate industry in Dubai is the upcoming Expo 2020, which is projected to have a positive impact on the Dubai Property Market.
The Dubai Land Department (DLD) has recorded 2,081 transactions between 17th-30th December 2018, which paves out enormous possibilities for the real estate sector in the future. To manage the business more efficiently, a real estate business must overcome specific challenges, from an accounting perspective. Let’s have a look at it.
Challenges Faced by the Real Estate Business
Sustaining in the real-estate industry turns out to be difficult at certain points if the accounting records are not adequately maintained. Some of the challenges faced by the accounting industry are stated below:
1. Accounting Estimates-Project cost, Revenue etc
The first challenge that a real estate business faces is to keep a proper track regarding the accounting records. Being involved in multiple projects, it becomes necessary that you segment the files accordingly. Also, the project cost and revenue generated from each of them need to be calculated separately so that it becomes easier to arrive at the final value.
2. Business Valuation
Once a company gets incorporated, it becomes essential that the owners should know the value of their business entity in the market. Determining the exact value involves much calculation, and it turns out to be difficult to do it in-house. Having a guide by your side can ease the process of determining the exact value of a business, which will help you in the future be it company expansion or liquidation.
3. Valuation of Closing Stock
Every quarter or annual closing stock count should be known to identify the final value of the stock. It also helps your business to have an overview regarding the orders to be placed and prevents overstocking.
4. Tax Treatment
When it comes to paying off taxes, every business needs to have the relevant documents that are audited during an external audit process. Moreover, paying off tax on time will help your business to earn a good reputation in the eyes of the law.
Real Estate Industry Insights
Recently, the International Accounting Standards Board (IASB) has made alterations regarding IFRS-15, which replaces IAS 8 “Revenue” and IAS 11 “Construction Contracts”. The adoption of the standard came effective on Jan 1, 2018. The changes made in the standards is bound to bring drastic changes in the Electrical & Construction Industry (E&C). It will also have a significant impact on the Real Estate Industry. Let’s have a look at it.
IFRS 15 and Real Estate Industry
IFRS 15 deals with the Five-Step Model that now gets to implement on the real estate sector as well.
1. Identify the Contract with a Customer
The first step is to identify the contract with the customer with detailed modifications and ideally changes accordingly with situations.
2. Identify the Separate Performance Obligations in the Contract
The business should stand clear in defining and understanding the promised goods and services according to the contract. There can be numerous activities stated in an agreement, and each of them can be noted as a separate performance.
3. Determine the Transaction Price
In the third step, the business entity needs to determine the transaction price that will be charged based on the contract generated. The revenue generated from each distinct service will be different and will be ultimately referred to as a separate performance obligation.
4. Allocate the Transaction Price to Separate Performance Obligations
The set transaction price needs to be allocated to different performance obligations. In the real estate industry, this segmentation applies to the primary goods and services provided.
5. Recognize the Revenue Generated
The last move is to understand the revenue generated upon the completion of an obligation. It becomes vital that the different revenues are calculated, and the final value can be fetched out easily.
Benefits of Availing Real Estate Accounting
Once your handover the accounting department is handled by professional experts, you will be able to gain the following benefits:
1. Streamlined Accounting Process
From the initial start of hiring an accountant, you will see a change as the accounting books will be streamlined easily. Carrying out this process will help your business to know the level of revenue generation, and profits earned.
2. High-Level of Accuracy
There is a high probability that if the accounting process is carried out in-house, it might end up showing specific errors. Subject-matter experts are well-versed with the accounting aspects, and therefore, the chances of error turn out to be extremely less.
3. Cost-Effective Services
Hiring an accountant turns out to be cost-effective a vast amount gets saved on the operational cost, and every task gets channelized accordingly suiting the business needs.
4. Fraud Detection
Error detection turns out to be prominent only if an expert in a particular field. Accounting experts can figure out the loopholes at a glance of the company documents. If you have been investing continuously, but it brings no result, there exists a chance that fraud takes place at the internal premises. Having an accountant by your side helps you to detect such errors quickly.
5. Effective Payroll System
Payroll turns out to be one of the vital departments of any organisation as it deals with the payment process of the employees. After the company incorporation, you need to hire the right candidate for the right job. If the payroll system is not appropriately maintained, it might demotivate the employees, which will result in loss of productivity.
6. Updated Technology
Technology has driven the entire business world to the next level. Multiple accounting software gets launched every next day, and this generates confusion regarding which software to avail for. Accounting experts are well-equipped with the best and updated software and they are skilled to work on it. Carrying out the same process in-house might increase the training cost etc.
7. Market Insights
Professional experts end up dealing with numerous clients, with unique cases. Moreover, their professionalism demands them to keep a check on what is prevailing in the market. Your accounting partner will not only help you in understanding the basics but will also guide you in business matters, which will turn out to be feasible for you to implement and grow your business.
Accounting serves to be one of the vital needs of any organization irrespective of the organization. Real estate stands as one of the dominating business segments in Dubai and demands accounting to streamline the process accordingly. Maintaining a correct book of accounts and records will help you to forecast the future of your business in an easy way, and to help you with it, JAXA Chartered Accountant is here. Experienced professionals holding a high experience in the accounting field are here to ease the process accordingly. Clients are provided with customized business solutions that make us stand as one of the best-chartered accountants in Dubai. To speak to our experts, do contact us today-we’d be glad to assist.