New expats lured into debt

(LIZ RAMOZ)

 
When Graham Fitch moved to Dubai in June 2005 he was looking for a way of life that would leave him and his family financially better off. But three years on the 42-year-old has said goodbye to the “Dubai dream” and had to send his wife and children home to the United Kingdom while he stays put in the Emirate to pay back Dh300,000 of debt he has built up.

“I came to Dubai to start a well-paid job in an advertising company. I didn’t have any debts at home apart from a mortgage, but that was being covered by renting it out.

“As soon as we arrived I had to look for a family house, two cars, a school for my three children and home help. The costs began to mount and I wasn’t prepared for the cost of my outgoings. What money I had saved was quickly gone.”

Fitch decided to get a loan to pay for a year’s worth of rent on a three-bedroom villa. “That was around Dh200,000 but I figured I’d be paying that off monthly like I would rent. I then had to buy two cars on finance and also had to pay for school fees. My wife wasn’t working at the time so we were relying on one income, and mine was not going quite as far as I had thought it would.”

In the end things got so bad for Fitch that after a year and a half he had barely anything to live on and he had no other choice but to send his family home. “Looking back I was stupid, but at the time I thought I could handle the situation.”

Fitch is not the only person in the UAE with this story. Emirates Business spoke to a number of expats whose debt has significantly increased since arriving in the country.

According to figures from the Dubai Department of Tourism and Commerce Marketing, 14 million people arrive in Dubai every year, with an estimated 100,000 of those staying to enjoy the sunny climes, lead a healthier lifestyle and have a better quality of life – but the financial practicalities and realities of living abroad are often very far from the dream they had imagined.

Susan Wiggins, 30, a marketing executive who arrived from Australia in March 2006, says she has gone into the red trying to “live the lifestyle”. She now owes Dh70,000 on a bank loan, Dh50,000 on a car loan and Dh40,000 on two credit cards.

“My job paid well, I had enough to cover the rent and bills and get a small car, but as soon as I started to make friends – many of whom earned a lot more than me – I began spending more than I could afford, paying for nights out and clothes on credit cards. It’s very easy to get drawn into living a life you cannot afford,” she adds. “Now I will be here for at least another year in order to clear my debts.”

Victoria Alderson, from Abbey Financial Solutions, a company that helps expatriates around the world with their finances says: “Many people move abroad for financial gain and a lifestyle change. In a country such as the UAE, where there is so much to do and no tax, it is very easy to fall into the ‘live for today’ mindset and not plan for the future. By thinking about your financial future and working with a good adviser you can maximise your expatriate status without hindering your current standard of living.

“Even saving a small amount can make a difference. Don’t be one of those expatriates who returns with nothing but a mass of photos and even worse still – debt.”

Research by Zurich International Life (ZIL) reveals that two fifths of expats in the Middle East rely on their own judgement to choose financial products, rather than turning to a financial adviser for guidance.

The Zurich Wealth Monitor surveyed 500 expatriate professionals living in the UAE and Bahrain, on their approaches to financial planning and lifestyle. The results showed that seeking advice from financial advisers was particularly low amongst Arab expats in the UAE, with only two per cent preferring this channel compared to 12 per cent for Western expats and 16 per cent for Indian expats. Regional Director for Zurich International Life Paul Haran commented: “In the absence of professional guidance, there is a real risk expatriates will not be suitably prepared for their future. By enlisting the help of a qualified financial adviser, people can achieve a considered approach to their financial planning and tailor their financial goals to their changing working and living circumstances.”

Figures from the UAE Central Bank show that personal loans in the Emirates amounted to Dh530 billion last year, up from Dh474bn in 2006. And data from UK-based Lafferty Group, which conducts financial research around the world, found credit card debt in the UAE increased 35 per cent last year to $2.7bn (Dh9.9bn) compared to $2bn in 2006, while personal consumer loans topped $11.16bn (Dh41bn) in the third quarter – a rise on the $8.5bn (Dh31.2bn) at the end of the previous year.

“Many banks want to know that there is a fixed income and because there is no way of telling if a person has other loans and finance, many are willing to give people more money than they can really afford to pay back,” says Sam Ebbs a financial advisor from Holborn Assets based in Dubai.

“Look at what you have coming in, what your outgoings are, and don’t get carried away trying to live beyond your means.”

In November 2006, Emcredit, the UAE’s first independent credit bureau, was set up to enable data sharing between banks. Banks who signed up to the scheme are able to see a customer’s credit history before giving credit. “It is beneficial to consumers as they get loans they can afford,” says Emcredit’s CEO Bashar Salah Qallab.

But at present only banks who sign up to the scheme have access to customers’ credit history, which leaves many residents free to borrow what they wish. “The only time I was asked about my other debts was when I was buying a car,” says Wiggins. All I needed was a letter from my employee to say I could pay it, no one knew I already had a bank loan and a lot on my credit cards.”

According to data from Dubai Police, 42 per cent of inmates at Dubai Central Jail are there for failing to repay loans.

But there are ways to get help. Many banks offer free financial advice to clients who get into financial trouble. Lester Wynne-Jones, Regional Head of Personal Financial Services at HSBC, says they are understanding if approached early on. “Early contact with the bank gives us an opportunity to help the customer and work with them,” he says.

Mashreq Bank also offers a credit control department whose responsibility it is to pursue customers who default on their loans. “We offer customers debt counselling and restructuring options to ease their debt burdens. I advise customers who are worried to come and talk to us about it,” says chief marketing officer Nabeel Malik.

 
The numbers

Dh530bn: Total personal loans in 2007

81%: Increase in personal debt in 2007

Dh150,000: Average debt of a UAE national

Dh100,000: Average debt of an expat

42%: Occupants of Dubai Central Jail failed to repay loans

 

Source: Central Bank of the UAE, Emcredit
 

 

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