Look what's pushing your living costs up

As ever more expatriates make a beeline for the UAE, the influx of new residents is spiralling the cost of living due to a demand-supply mismatch in the real estate industry, considered by insiders as the driver of inflation in the Emirates.

Researchers and real estate experts are now putting Dubai on a par with cities such as Geneva, Switzerland, long-considered as one of the most expensive cities to live in.

"Foreign ownership has sparked a boom in the UAE housing market and this has pushed up rents," says Nigel Watson, the sales director of property management company Nexus Group. "It now isn't unusual for a senior executive to be paying Dh14,000 to Dh22,000 a month for accommodation, which can be more than an equivalent place in London but there is no sign of this slowing down."

Interestingly, a report released last week by HSBC said the UAE, along with Singapore and the United States, were the best locations in the world to be an expat. The Expat Explorer survey, which interviewed more than 2,000 expatriates across four continents, ranked the top-rated places to live based on living standards, an expat's ability to earn and save, a country's popularity, and the level of luxury experienced.

The United Kingdom and France, ranked 14 and 15 respectively, were some of the lowest rated expat destinations in the survey, scoring low on their levels of luxury and choices of accommodation.

Another report by Mercer, a New York-based human resource consulting firm, said Dubai and Abu Dhabi had lower ranking than previous years in their Cost of Living survey 2008, also released last week. Spanning 143 cities across six continents, the study measured the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment to help multinational companies and governments determine compensation allowances for their employees when moving to various countries.

While Moscow is the most expensive city in the world for expatriates, followed by Tokyo and London, Dubai and Abu Dhabi were at 52 and 65 in the ranking due to a weakening dollar to which the UAE dirham is pegged.

But prices here will continue their ascent, especially in the real estate sector, say insiders. "Most of the projects being handed over are apartments, therefore, with little new stock in terms of villas it's likely that prices will continue to rise," says Liz O'Connor, head of leasing at Better Homes Dubai.

According to statistics from property consultants Asteco, overall rents in Dubai for the second quarter of this year were 22 per cent higher than the same period last year. But in popular areas along Sheikh Zayed Road, rents soared by 51 per cent in that time. A two-bed room apartment there now costs between Dh185,000 and Dh200,000 a year.

"Occupancy rates in Bur Dubai are extremely tight – between 90-95 per cent," says Andrew Chambers, the managing director. "Owing to its relatively affordable rents, most tenants tend not to move out resulting in a shortage of reasonably priced units and pushing rents up further."

The story in Abu Dhabi is no better where a two-bed room apartment on the Corniche now starts from Dh170,000 a year, up from an average of Dh95,000 in the second quarter last year, according to the Asteco data.

And people are going to keep coming. Statistics from the Department of Tourism and Commerce Marketing (DTCM) show the population of Dubai and Abu Dhabi rose by 220,000 between 2006 and 2007, the equivalent of more than 4,200 new residents moving per week.

But rising rent rates is not the only issue that residents in the UAE have to contend with. Nexus Group's Watson puts the rise in the overall cost of living in the UAE down to three things: accommodation, education fees and an influx of international firms setting up in the country.

The change in the law with regard to school fees will hit a number of families hard, he believes. "Education fees are the second biggest expense for expats and while there used to be a cap of 20 per cent over three years on increments, that has now been lifted and private schools have enjoyed a massive boom here as expats don't have a choice but to go for private education," he says.

Graham Rowlands, regional director at recruitment company Hudson, says: "New firms opening in Dubai are bound to have an affect on the cost of living because they need new people and they're not used to the market conditions and tend to offer better packages than local companies."

According to data from the Gulf Research Centre (GRC), inflation in the UAE has soared over the past five years from 2.9 per cent in 2002 to 11.3 per cent today, and controlling it is becoming a challenge.

"One way to do it would be through raising interest rates but that cannot be done with a currency peg," says Dr Eckart Woertz, the programne manager for economics at the GRC, adding that the possibilities to influence global prices is limited for a small country like the UAE, giving people little control over their financial future.

Nexus' Watson says: "If the UAE currency is revalued to 30 per cent, then a small group of people who depend on it will be affected. Those who remit money will be concerned as it will also reduce their purchasing power."

But with the UAE's population set to grow and with cities such as Abu Dhabi expected to reach 3.1 million people by 2030, according to government plans, there seems to be no sign of anything slowing down.

Cutting back

When Gail Potter, 37 (pictured above) moved to the UAE from Kuwait, money was not one of her main concerns. Now, eight years on, there is not as much left in the bank at the end of the month and her bills are rising. "I've noticed it the most in the past year as Salik has made a massive difference, but petrol has gone up too so while it used to cost me Dh80 to fill my car it now costs Dh100 and I've started shopping at Lulu instead of Spinneys because it's cheaper," says the Dubai-based professional.

Even though Potter's rent in Al Qusais is still reasonable, at Dh44,000 a year, she would like to move closer to the centre of Dubai. "I have to spend over an hour a day in traffic, but I'd rather do that than move into a villa share which is all I'd be able to afford in town," she says. "I also used to joke that takeaways were cheaper than cooking, but that's not the case now."

Follow Emirates 24|7 on Google News.