A high cost of living or the cost of high living?

In days gone by, expatriates came to the Middle East on a hardship posting; high wages, low spending - there weren't many shops in the desert - and very few ‘recognisable' pastimes to indulge in. In 2007, you can walk into any hotel or shopping mall and see the best of the West, better. Despite this decrease in ‘hardship' employees still don't pay income tax, enjoy many perks that were either unaffordable or unheard of in their native countries, and in some cases appreciate much better weather as well.

So, as companies are faced with continued increases in the cost of living for their staff, what is the answer that will help them net the expatriates they need to, and keep people motivated in moving to Dubai?

There are three points that spring immediately to mind.

Firstly, low annual increases in wages are not going to be enough to keep employees, given the inflationary and fast-changing nature of the local economy. As Dubai becomes more and more of a cosmopolitan city, costs will increase. The city must grow, pay will go up accordingly, this is basic economics. Most people move to Dubai for the increased ‘bottom line' wages, bankable after all outgoings have been covered; if this equation changes too much, people with a choice will simply return to their home countries.

Second, landlords must be prepared to accept changing market conditions. It is undoubtedly true that the rental market for accommodation in Dubai has soared in the last five years, and despite the best efforts of the government to cap the annual increases, landlords can and do find ways around these limits. However, with the massive number of units being delivered in the next few years, this will begin to even out the supply side. Landlords now need to be more realistic in their long-term budgeting. Most now accept only one or two cheques compared to the four or five it used to be. Rent is the single biggest concern for Joe public, and the landlords are part of the potential solution.

Having said this, education and healthcare are also huge concerns for the man on the street. As the costs of schooling are rocketing, the new norm for overall employee packages is to incorporate ‘family' costs in a more defined way, even a gym membership is a part that must be considered these days. Last year the launch of companies like du, and the influx of companies to the DIFC were some of the big ticket items that caused a stir in the market, and increased demand across the board in all these areas. DIFC continues to have an impact, and as Studio City, Dubai World Central, and other huge projects rise out of the sand we will see continued demand, keeping the rental equation stable.

Thirdly, people must be allowed to get onto the property ladder earlier, to avoid the rental black hole. This is the most important point, and banks and financial institutions are the ones who must provide the answers.

Last year 800 people a day moved to Dubai. That's 800 people who are forced to rent because the banks need salary certificates and ‘x' month's payment history before they will even consider lending to an individual, no matter what their status was in another country. The new credit bureau should be the first step down this road. Innovative methods of assessing and lending must be part of the banking sector's response to this need. Newcomers to Dubai would then potentially be able to buy as they move, avoiding the rental dilemma, increasing their commitment to remaining in Dubai, and building up their equity.

On a macro level perhaps stopping the importation of inflation linked to the dollar would help here; how long before this is possible though is another question entirely.

Rashid AW Galadari is chairman of Galadari Investment Office (GIO).

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READERS' COMMENTS

ownership and property owner's visa
Posted by langyaw, Dubai, UAE on Tuesday 17 July 2007 at 14:00 UAE time


Not only should the ownership factor be made viable, but residency as well. The package could include a residency that is "tied" to the ownership of the house and/or lot, where, as long as the person owns the property, his residency is valid, co-terminus with his ownership. 
-- langyaw

Very well said...
Posted by T Crowe Semler, Riyadh, Saudi Arabia on Tuesday 17 July 2007 at 11:00 UAE time

Rashid is right on target...Thank you for this article. "Forethought" is critical to understanding the future needs of Dubai's work force. Dubai must consider all the factors needed to promote long-term-growth while promoting a "friendly" environment for expatriates , as well as, UAE citizens.

People within a community must feel "a-part-of" have "ownership" within the community to insure the best society. Home ownership is one way to develop strong healthy communities for the UAE's citizens and expatiates who call Dubai home.

Ahight cost of living or a new cost of high living
Posted by Ashok Mathew, Dubai, UAE on Tuesday 17 July 2007 at 10:00 UAE time

I agree with Galadaris viewpoint on the control mechanism required for sustaining the growth of this emirate and country in general. Very few thinkers look at this practicality and coming from a national who not only thinks in the interests of the citizens but also the expatriate community goes a long way in showing the mindset that is positive for the authorities to look into. Well written.

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