Can you afford it?

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It's the big question on everybody's lips - just how expensive has life in Dubai become?

The signs of inflation are everywhere - from spiralling rents to the price of apples in the supermarket.

And if the cost of hamburgers is anything to go by then Dubai has become one of the most expensive cities in the world.

According to recruitment firm Kershaw Leonard's Cost of Living Dubai Report 2007-2008, the emirate is now the third most expensive place in the world to buy a Big Mac burger from McDonald's - US$2.72 compared to US$1.66 in the cheapest place, Hong Kong. And a recent study by consultancy firm ECA International ranked the emirate as being the 14th most expensive city to rent accommodation out of the 92 it surveyed.

The International Monetary Fund (IMF) estimates the rate of inflation in the UAE at around 10% across the UAE - but believes it could be much higher in Dubai. In this special report we reveal the true cost of your Dubai lifestyle - and ask, can you afford it?

Accommodation

Perhaps the biggest indication of just how high accommodation costs have risen in Dubai is the fact rental costs are now on a par with Geneva - one of the most expensive cities in Europe.

Kershaw Leonard's study compared the cost of renting a four-bedroom villa in the Meadows development with the cost of renting the same size of property in prestigious areas of Geneva and the similarities are staggering.

While the Dubai property costs US$6,000 a month to rent, the Geneva villa costs US$6,275.

Meanwhile a newly built three-bedroom apartment in the Burj Residences will cost occupants US$4,000 per month while a similar property in Geneva costs US$4,600 a month.

Mike Hynes, managing partner of Kershaw Leonard, admits he was surprised by the price parallels between the two cities.

"We chose to compare Dubai to Geneva because Dubai has moved from being a growing city to a world city, which begs a price comparison with other world cities.

"Geneva is generally regarded as one of the most expensive places to live in Europe so I honestly thought there would be a greater disparity between rents in the two places.

"But to all intents and purposes the rent is the same, which makes Dubai a very expensive place to live in world terms."

Experts agree that rocketing property prices are having the biggest impact on the cost of living in Dubai.

Ajit Karnik, professor of economics at the University of Wollongong, says: "The main driving force of inflation in Dubai is the cost of property. If that had remained stable then most people would have been able to absorb other increases in cost.

"But it is so significant that families in particular are really being squeezed."

He blames the steady rise in the cost of accommodation on the fact that demand for housing continues to outstrip supply.

"There is a continual influx of outsiders coming in and demand has shot up.

"And although there is talk about supply coming on stream in 2007 and 2008, that assumes that demand will not continue to rise even further."

According to Karnik, the estimated 65% rise in rental prices in Dubai is supported partly by the fact that many expatriates receive allowances for accommodation from their employers so they can afford the increases. "These people can afford to pay the rents being quoted and once demand starts to match whatever is being asked for there is unlikely to be a downward pressure on rent," he claims.

Meanwhile, he says, the price of freehold property in has received a big boost from the introduction of freehold property laws allowing expatriates to buy.

Property ownership

In the area of freehold property the price of villas has seen the biggest increase with the value of two, three and four-bedroom properties in the Springs, Meadows and Arabian Ranches developments shooting up by up to 50% in the past year alone.

Prices of four-bedroom villas have risen over 45% at Jumeirah Islands, 49% in parts of the Ranches and 35% at Green Community West.

Five bedroom villas rose around 43% in the Arabian Ranches, over 30% on the Palm Jumeirah and 18% in the Meadows between 2006 and 2007.

The price of freehold apartments in Dubai has also shot up with the biggest increase seen in the price of one-bedroom apartments at International City - the price of which have risen by 60% in the past year.

One-bedroom apartments in other areas have seen relatively small rises - 15% at Jumeirah Beach Residence, and Jumeirah Lake Towers and around 5% at Dubai Marina and Discovery Gardens.

However, two-bedroom apartments have rocketed by 50% at Dubai Marina, 40% at the Greens main buildings and around 28% on the Palm Jumeirah.

Alongside rising house prices, the associated costs of actually buying a property in the UAE have risen sharply, reflecting the boom in the country's property market. Mortgage interest rates have risen on average between 0.5% and 0.75% compared to this time last year, from 8% on average to 8.5% now.

This translates into an actual average increase in monthly mortgage repayments of around 15% for buyers.

An example of what this means in real terms is that the monthly repayments for a three-bedroom villa in The Springs have increased by around 55% - from AED13,380 one year ago to AED20,925 now.

Despite these increases however, buying a property in Dubai compared to in Geneva remains significantly cheaper.

While the cost of buying a four-bedroom semi-detached Type 1E villa in the Springs is between US$760,000 and US$890,000 the cost of a similar property in Geneva is between US$970,000 and US$1,300,000.

Similarly a four-bedroom detached villa in the Meadows costs up to US$1,450,000 compared to up to US$2,250,000 for a four-bedroom villa in Geneva.

"Buying could still be viewed as fairly significantly cheaper here in Dubai than it is in Geneva, despite the fact that renting is still very much on a par," says Hynes.

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USER COMMENTS (7 COMMENTS)

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You are better in Geneva
Posted by dfasdf on Sunday 13 July 2008 at 02:27 UAE time


The quality of the services, the public health, the salaries (even after tax) can't compare with Dubai. The only disadvantage is the climate, much colder in Geneva.

Is 8500 AED / month enough to live in Dunai
Posted by Ashish, Delhi, India on Thursday 1 May 2008 at 19:08 UAE time

Is 8500 AED / month enough to live in Dubai?

REVISION OF SALARIES BY UAE GOVERNMENT
Posted by RAJENDRA ANEJA, DUBAI, UAE on Tuesday 27 November 2007 at 13:00 UAE time


The revision in the salaries of Government officers was more than overdue considering the inflationary trends in the Gulf, the escalating prices of property, the devaluation of the US dollar and rising costs of services like education, banking etc. Foot items, most of which are imported into the Gulf, are becoming very expensive due to the devaluation of the US dollar. Prices of flour have doubled at the retail level. 
 
However, instead of giving a flat 70% hike in salaries, the Government could have passed the increments in the form of benefits, which would improve living standards, but yet prevent inflation. For instance, the Government could have given free housing to the employees, or free maintained cars, leave travel tickets, free medical treatment, subsidized education, and items of daily consumption like milk, flour, rice, etc. These perquisites, ensure benefits to the employees, without generating an inflationary spiral. 
 
There is need to evolve a "Cost of Living Index", which can be used annually to measure the standard of living of citizens. Cost escalations and salary hikes can thus be calculated more scientifically and logically. Such an index is available in most countries. The Economist magazine, has such an index for most developed/developing countries.  
 
It is vital to have such an index. As a result of the 70% hike in Government salaries, there is a lot of angst or heart-burning amongst the employees, in the private sector! Expectations, for cost adjustments have risen amongst private sector employees; however as in the past, these may not be fulfilled. Nevertheless, a cost of living economic index, gives all employers a basis of intelligent comparison. 
 
A simpler index is the "Big Mac Index", used by the Economist magazine, to ensure purchasing-power parity, so that a dollar should buy the same amount of goods or services in all countries. Using, the "Big Mac Index", would mean hamburgers cost the same in USA or in any other country. 
 
It appears that Dubai is no longer a place where you can come and make a fortune. Dubai is becoming a place, where you make your fortune elsewhere and then come and spend it by investing it in a villa in the World Island, buying a jet or Mercedes, dining in 7 star hotels!! The middle class, will be increasingly marginalized!!

Re: Can you afford it?
Posted by Afroze Mushtaree, Abu Dhabi, United Arab Emirates on Friday 9 November 2007 at 23:00 UAE time


I feel that it is not accurate to compare Dubai with Geneva only in terms of rents. The standard of living in the two places is different. Other factors such as the average pay per person, demand and supply of houses and other factors should also be considered to make a fair comparison.  
 
It is also beyond my grasp why, even with the increasing demand for houses, certain buildings which were previously available for rent are now being vacated and converted to hotel apartments. This is not only the case in Dubai but also in the other emirates.

On Dubai rents
Posted by Amal Bou Saleh, Abu Dhabi, uae on Friday 2 November 2007 at 15:00 UAE time


i think the author of this article compared dubai rent and buying prices to Geneva ignoring other important factors such as the income earned by most of the people who works in Dubai.If it is a real inflation then everything should accompany this uncontrollable rise in rents and real estate properties prices. The fact is that salaries remain little and the increment given to employees or workers is nothing compared to such increase in the rate of inflation which is reaching 10%. I do not agree with Ajit since not all expatriates can afford to live in Dubai, not all businesses provide allowances to their employees, they are forced to live In sharjah or outside Dubai since rents there are less expensive. keeping in mind that it is true that demand and supply of apartments in Dubai leads to such increase in prices, yet it is really not clear who will be able to afford paying such rents.

Misleading article
Posted by Bill McGuirk, Dubai, UAE on Tuesday 17 July 2007 at 14:00 UAE time


What Ajit Karnik fails to point out is that Dubai is primarily a low-waged economy. By the Dubai government's own figures, just 4.6% of the population earns more than 20,000 dhs per month, with the overwhelming majority earning 3000 dhs per month or less. Yes, there are tens of thousands of new expats arriving each year, but the majority of them will never be able to afford to rent or buy in Dubai; they will live in cheaper emirates and commute into Dubai to work. 
 
It's also worth bearing in mind that the number of expats who receive a realistic housing allowance is dropping all the time. The idea that all the higher-paid Western expats can easily afford their rent is farcical; the massively increased cost of living is forcing many long-term expat families to leave Dubai.

SHOW ALL COMMENTS

Can you afford it? by Diana Milne on Sunday, 08 July 2007
Posted by vB, Dubai, UAE on Sunday 8 July 2007 at 15:00 UAE time


It may be more expensive to buy a property in Geneva but then you have "real ownership" guaranteed by LAW. Dubai doesnt have a property law in the real sense of the word!  
 
You get to own the piece of land on which the property is built in Geneva not some undefined, vague right to live. 
 
And the return on property investment

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