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Sun 15 Jul 2007 12:00 AM

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

Rashid AW Galadari asks what will keep people moving to Dubai as the cost of living goes up?

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.

People must be allowed to get onto the property ladder earlier, to avoid the rental black hole.

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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