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29 March 2024

Dubai becomes more affordable to live and work in

Published
By Vicky Kapur

The cost of living and working in Dubai is still 16 per cent below what it was in 2008, making the emirate more affordable today than it was six years ago, a new study has revealed.

In its latest World Research Report for the second half of 2014, international real estate advisor Savills ranks Dubai as the ninth most expensive city (out of the 12 it studies), which is an improvement from the seventh most expensive city that the emirate was ranked in the H1 2014 report.



In addition, despite the recently surging rents, the cost of living in Dubai is actually 16 per cent lower on average than what it was six years ago, in 2008, when the emirate was ranked as the eighth most expensive city to live in, the study shows.

“Dubai may have experienced extraordinary price growth in recent years, but property values are still substantially less than in other major world centres,” the report maintains.

“The Federal Mortgage Cap (off-plan purchases are now limited to 50 per cent of loan-to-value), coupled with a doubling of the property registration fee (albeit to a still modest 4 per cent) is translating into a slowdown in the number of transactions recorded, bringing some market stability,” it notes.

The Savills Live/Work Index measures the total costs per employee of renting, living and working in 12 cities across the globe. It involves office costs, taxes and fluctuating exchange rates.

“Dubai has seen volatile live/work costs that are currently 16 per cent below their 2008 levels. This makes the emirate more affordable on the global stage than it was at the height of the boom,” the Savills report highlights.

Read: Dubai rents rise fastest in the world 

According to the Savills report, the live/work cost per employee for a company works out to $52,149 (Dh191,543) per annum, or Dh15,962 per month, in Dubai. This is down substantially from the over $60,000 (Dh220,380) per annum, or Dh18,365, that it used to cost an employee to live/work in Dubai in 2008.

“Dubai is establishing itself as a safe haven in the Middle East,” the report maintains. “In the office sector, general political instability in the region has pushed more occupiers to Dubai, resulting in lower vacancy rates in the prime districts. But the emirate also benefits from investment from the west and is a popular second-home destination,” it adds.

In fact, Dubai ranks among the Top 5 cities in the world in terms of hotspots that can boast of the maximum number of ultra-rich with second homes or holiday homes.

Read: More Dubai millionaires with 2nd homes than Paris

Globally, topping the 2014 H2 charts as the most expensive city to live in is London, which displaces Hong Kong from that position after the Asian city stubbornly remained there for the past five years. “A combination of falling residential rents and, most importantly, a weakening currency, has increased cost competitiveness in the [Hong Kong] city,” states the report.

London, therefore, becomes the most expensive city in which to accommodate staff, it notes. Working against London has primarily been sterling’s appreciation against the US dollar, up until June 2014. This, coupled with significant increases in office rents, has pushed up London’s total costs in dollar terms, the report says.

Nevertheless, owning and renting prime property in Hong Kong remains exorbitant, and that means that financial centres like Dubai have a major advantage over it. “Our analysis highlights the difference between Hong Kong and ‘the rest’. Prime prices in Hong Kong, at just over $4,000 per sq ft (Dh14,700 psft), are four times those of Dubai and more than twice those of Singapore,” the report highlights.


Nevertheless, the report adds that the recent surge in cost of living in Dubai could neutralise some of that advantage.

“As global interest in the city increases, total costs have grown by 25 per cent in the year to June 2014 alone, so Dubai’s advantages may be short-lived if this continues,” it warns.

In fact, according to global property consultancy Knight Frank, Dubai’s residential prices are expected to resume on an upward path in the second half of this year. In its June ‘Dubai Prime Residential Report,’ the firm cites strong economic conditions, a well performing labour market and prospects of loosening credit standards for buyers to suggest that demand for prime residential property will see an uptick in the short-term.

Read: Dubai house prices to rise again in second half of 2014: Knight Frank 

In terms of mega projects, the Savills report highlights the importance of the World Expo 2020, which is anticipated to generate 277,000 new jobs and inject $40 billion (Dh147b) into the economy.

“This has instilled confidence in the real estate markets and has kick-started major projects… Palm Deira has been reborn as Deira Island, providing residential, hospitality and retail development opportunities. New schemes will be supported by major infrastructure investment, including an extension to the Dubai Metro and new river crossings,” the report states.

The Dubai property market continues to outperform its global peers and the reason behind this is that it is seen as a not just an inflation-proof store of value, but also a great asset for higher return on investment.

Revealed: Reasons why Dubai property prices are booming

“Dubai enjoys a strategic position in the Middle East and is a city of superlatives: it boasts the world’s tallest building (Burj Khalifa); the largest mall (The Dubai Mall); man-made islands and huge logistics hubs. Its population has more than tripled since 1995 as the city has pursued a strategy of reducing reliance on oil and energy to position itself as an international centre of trade and business, as well as tourism,” the Savills report highlights.

In addition, Savills acknowledges the steps being taken by authorities to reduce volatility and encourage sustained growth. “There are a number of things Dubai is doing differently this time round. The government introduced cooling measures in the second half of 2013 in a bid to reduce speculation in property. These included mortgage caps and the doubling of property transfer fees from 2 to 4 per cent, as well as a clampdown on ‘flipping’,” it notes.

“As the city matures and finds itself better established on the world stage, its long-term prospects are looking more positive,” it added.

Dubai’s tourism and conference industry has fuelled luxury hotel rates, which are “third only to Paris and London,” Savills said. “Prime rents are low by global standards, says Savills, reflecting the nascent nature of that sector.