Can you afford it?

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Pramukh Jayathilak.

Rent

Despite stringent efforts on the part of the Dubai Government to curb the inflation in the rental market, prices have more than doubled in some areas since 2005.

Renting is still the preferred choice of many expats however it is becoming an increasingly expensive option with rises over the past year of between 20% to 36% to rent apartments in the Greens and increases of 20% to 50% for townhouses in the Springs, just two examples. The biggest rental increases for apartments can be seen in the Karama area of Burdubai, where the cost of renting a two-bedroom apartment has risen by around 47%.

One-bedroom apartments in Sheikh Zayed Road experienced the second biggest hike, rising in price by 40%. To rent a four-bedroom villa in Springs 1E is now around 53% more expensive than a year ago, while the cost of renting a five-bedroom villa in Umm Sequim has risen by around 44% since last year.

Increases in rental prices for three-bedroom villas have risen from between 17% in Jumeirah to 47% at the Arabian Ranches.

The biggest move made by the government to curb rental inflation was to introduce the rental cap and Kershaw Leonard's study notes that this is having a real impact. Across the city, increases in existing tenancy contracts have been capped at around 7% with the result that many have stayed the same as they were in 2006. However according to the study this has created a situation where there are two parallel rent markets in Dubai - one for existing and one for new tenancies.

There is no cap on how much landlords can increase new tenancies so differences between these and previous agreements can be as high as 100%.

For example, existing tenancies for villas in the Springs may be capped at AED80,000 per annum under a rent committee ruling. However, identical new vacant villas are being leased out at between AED160,000 and AED170,000.

One impact of these rising rental costs, according to Kershaw Leonard's report, is that residents are turning their sights to areas outside Dubai, particularly Sharjah.

The impact of this has been a rise in rental costs in the emirate of between 20% to 30% in the past year.

Heading even further afield, the emirates of Ajman, Umm al-Quwain and Ras Al Khaimah all look set to become property hot spots having all launched real estate projects in recent years.

And judging by the phenomenal success of Dubai's property market it may not be long before residents there will also be feeling the pinch.

Education

As the driving force behind Dubai's inflation, spiralling property prices have impacted every aspect of life in the emirate - including education, which Kershaw Leonard's report lists as second only in price inflation to accommodation.

According to Professor Karnik, it is the rising rental costs - in terms of school buildings and accommodation allowances for staff - that have led to steep increases in the cost of schooling for children in Dubai.

"One result of the rise in property costs is that education costs are also going up. Naturally because schools are having to pay higher rentals this has a spillover effect into the cost of education."

Dr Kenneth Wilson is professor of economics and director of the economic and policy research unit at Zayed University. He adds: "Part of the reason for the rise in education costs is related to rent and the fact that the schools often don't own the land that their buildings are on.

"They are paying rent like anybody else and their landlords are demanding increases. Schools can't just pack up and find another building because there is a big capital investment involved so they increase fees to cover the costs."

Up until 2007 schools in Dubai were only allowed to increase their fees by 20% over a three-year period. However, this cap was revised to allow local schools to raise their fees by 16% a year and 20% for internationally accredited schools.

As a result of these changes, fees have risen dramatically. In schools where the UK, US or European curriculum is taught by teachers from those countries, costs have risen from a minimum of AED21,600 in 2006 to AED26,100 in 2007 for primary level children, grades one to six. The cost for secondary level children, grades seven to 12 has shot up from a minimum of AED33,000 in 2006 to AED43,815 in 2007.

For schools teaching the UK, US or European curriculum but with non-western teaching staff, costs rose from a minimum of AED13,230 for primary level children in 2006 to AED15,367. The price for secondary level children increased from AED15,750 minimum to AED 18,270.

Schools teaching the Indian curriculum are the cheapest and saw the smallest increases between 2006 and 2007.

The price of education for primary level children increased from a minimum of AED6,300 in 2006 to AED6,900 in 2007, while the cost of educating secondary level children went from AED7,500 in 2006 to AED7,950 in 2007.

Kershaw Leonard's report points out that some schools structure their fees to also include heavy additional costs. For example, its research identified one school (unnamed) for which the joining fee was 130% of the tuition costs for that year.

Research by Gulf News in January this year revealed that a third of its readers - most of whom earn between AED6,000 and AED 15,000 a month - spend from AED6,000 per month on school fees.

This means that any increase in the cost of education in Dubai can have a huge impact on the finances of families in the emirate.

In Kershaw Leonard's case studies, the typical Asian expat family saw an increase of 17.95% in the amount they spent on educating their seven-year-old child at an English-speaking school in Sharjah between 2006 and 2007.

Meanwhile the Western expatriate family spent 11.78% more on educating their eight and four-year-old children at The Wellington School and the Dubai British School.

The cost of education for expatriate families is likely to continue rising and Kershaw Leonard's study predicts that with the arrival of elite international schools into Dubai - including the prestigious UK boarding school, Repton - new elite standards in pricing are likely to be set.

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READERS' COMMENTS

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.

COST OF LIVING
Posted by GIRISH N PANDE, DUBAI, INDIA on Saturday 28 June 2008 at 16:29 UAE time


I am doubtful whether AED 8500/- per month is enough for maintaining the same lifestyle as in India.

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!!

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