In a recent survey conducted by Aon, only 8 percent of firms are looking at adjusting housing allowances due to the rising cost of housing in Dubai. Interestingly, 70 percent of firms said they would adjust housing allowances for new hires.
Over the last 12 months, average rents for apartments have increased 12 percent and for villas 22.5 percent. High-end villas are up an astounding 44 percent, according to Frank Knight. Though if you are like me I’m sure you have hear of even larger increases in high-demand communities.
In a traditional expatriate package, where an existing employee is moving locations, housing allowance, school fees and flights home are common. The goal is to keep an employee “whole” based on the total rewards they were receiving in their home country.
In Dubai, over the last 20 years, many firms have moved away from this approach for locally-hired expatriates. Instead, many firms are now providing “total salary,” which is split 60 percent in basic salary (reducing End of Service Gratuity and Insurance obligations) and 40 percent in allowances.
This approach works when housing and other costs were rising at a normal rate of inflation. With housing costs rising again in Dubai and other large expatriate markets like Singapore, I think firms must rethink how they approach this expense.
Here are some scenarios that may sound familiar: You might have three employees doing the same job being paid the same, but with potentially very different housing costs:
– One employee has been renting and has a landlord that is following RERA or other rent control regulations with a rent of $5,000 per month.
– One employee is new to the country and is paying market rate of $6,500 per month.
– One employee owns their home and is paying a mortgage (with potentially increasing interest rates).
While I believe that employers should pay for the job and not the employee’s personal choices of where to live, how many children to have and so on, the current market environment may make it difficult to attract and retain talent. And making changes only for new hires without looking at adjustments for existing talent, will create internal inequities.
I don’t know if there is a magic bullet for this, but one strategy we’ve discussed with clients over the years is that the firm holds the lease for an employee for say two or three years.
This effectively treats them more like a traditional expatriate. Then if the employee decides to stay beyond that time period, they are shifted to a local package. At this point they can purchase a home or continue to rent, but then it’s their issue to manage.
Ray Everett is Senior Partner, Human Capital Solutions at Aon.
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