Rise in UAE residents using credit cards, loans to clear existing debts

Survey results reflect growing concern over the rising cost of living as Dubai inflation hits highest level since 2009
Rise in UAE residents using credit cards, loans to clear existing debts
By Staff writer
Wed 29 Oct 2014 10:12 AM

As the cost of living continues to rises in Dubai, with inflation soaring to its highest level since May 2009, a new survey has found an increasing number of residents are using credit cards and personal loans to cover repayments on existing debts.

Around 28 percent of those who responded to a new poll, conducted by the financial comparison website compareit4me.com between July and August 2014, admitted they were falling into the short-term financial trap.

The results showed the strategy is on the rise, up from 20 percent who confessed doing the same a year ago.

“Majority (77.3 percent) of the survey respondents have credit cards, with a quarter of them owning more than three cards. This is a rather risky trend, especially if consumers find their monthly debt repayments becoming unmanageable,” said Jon Richards, CEO of compareit4me.com.

“There are however 28 percent of respondents who are finding debt repayments difficult and this is a concern. The cost of living in Dubai is rising and unfortunately at a faster rate than salaries. This is forcing some to use debt to cover basic costs like rent which is clearly not sustainable. Anyone struggling to make repayments on their current debts should speak to their creditors immediately to discuss the possibility of restructuring the debt,” he added.

The survey results found that 11 percent said they had got in contact with their lenders in order to consolidate existing debts.

A different survey by the same website in September found more than a quarter of respondents polled admitted to missing a payment or making a late payment on their existing loans.

The results found that 5.8 percent of the respondents have often defaulted on their loans, while 19.3 percent have missed or made a late payment once or twice in the last 12 months.

Around 77 percent of respondents confirmed that they have some form of debt with UAE banks, with credit cards (54.7 percent) topping the list, followed by personal loans (43.6 percent), car loans (12.6 percent) and mortgages (4.1 percent).

The concern over personal debt levels comes as Dubai's inflation rate in September rose to its highest level since May 2009, driven by housing and utility costs, according to consumer price data released by Dubai Statistics Centre.

Inflation rose to 4.2 percent year-on-year with housing and utility costs, which account for almost 44 percent of consumer expenses, rising 6.5 percent year-on-year, the fastest increase since 2008, and 0.4 percent month-on-month in September.

Food and beverage prices, which account for 11 percent of the basket, increased 3.7 percent on an annual basis and 1.3percent from the previous month, according to the figures which were cited by Reuters.

Earlier this month, real estate consultants Knight Frank said prime rents in Dubai continue to outpace wage inflation which is raising concerns about affordability, leading some to consider buying instead of renting.

The rising cost of living in the emirates has resulted in Bahrain, Qatar and Oman becoming more popular destinations for expats than the UAE, according to HSBC’s annual Expat Explorer 2014 survey.

The survey said that despite the offer of better job prospects and higher salaries, respondents said expats in the UAE continue to face "significant challenges due to the rising cost of living and expenses related to raising children".

Expat Explorer 2014, a survey of close to 9,300 respondents from over 100 countries and 963 people in the UAE, assesses expat attitudes towards their host countries. Expats with aspirations of boosting their earning potential and job prospects still flock to the UAE according to the report.

Seven out of 10 respondents (71 percent) said that they would earn more in the UAE than in their home country, compared to the global average of 53 percent. At the same time, 58 percent of expats associate the UAE with high salaries, outpacing the global average of 40 percent.

The majority of expats also recognise the benefits of not having to pay taxes, as two-thirds (66 percent) associate the country with a lower tax system.

In spite of the financial opportunities of living in the UAE, the survey showed that people are struggling to cope with the high cost of living standards. Six out of 10 expats stated that they would consider moving away from the UAE because it is too expensive, far higher than the global average of 32 percent.

Andy Ripley, head of retail banking and wealth management, UAE, HSBC said: “The high cost of living is an understandable source of concern, and we see that this is being compounded by 58 percent of expats stating that their finances have become more complex since they moved.”

As costs continue to rise, the latest data from the UAE Central Bank also found that consumer lending in the country has been upbeat, with personal loans accounting for 77.5 percent of the total increase in new loans provided by banks to customers in all sectors in June. UAE banks’ personal loans book grew by 0.8 percent to AED295.9 billion ($80.5 billion) during the month from AED293.5 billion in May.

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