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07 December 2023

Most UAE firms reviewing rental allowances; expect salary hike?

Abu Dhabi registered a y-o-y rental increase of 12 per cent in Q2 2014 while the same ranged between 11 per cent for villas and 27 per cent for apartments in Dubai. (Shutterstock)

By Shuchita Kapur

In the wake of rising rents in 2014, most companies in the UAE reviewed the housing rent allowance given to employees to help them shield from an increase in their yearly spend on accommodation.

According to a new study by SEI Investments titled ‘Employment Trends and Managing End of Service Benefits in the Middle East’, a substantial number (88 per cent) of respondents, companies/employers, who participated in the survey reviewed housing allowances as part of their benefits analysis in the last 12 months.

Rents in the country, especially in the first half of 2014, saw many tenants complaining of their landlords trying to extract a double-digit increase in their annual rent, prompting several companies to consider this allowance to staff to align with the ground realities.

For example, Abu Dhabi registered a y-o-y rental increase of 12 per cent in Q2 2014 while the same ranged between 11 per cent for villas and 27 per cent for apartments in Dubai.

Various recruitment companies have acknowledged the trend in their recent reports.

As per the previous ‘GCC Allowances and Benefits Survey’ conducted by Aon Hewitt, companies across the UAE are recognising the need to introduce new measures and have started to shift their budget allocation to employee allowances and benefits.

The same views were shared by another HR consultancy Towers Watson, which said 2014 marked as a year of change for employees’ remuneration in the UAE, to help them foot the increasing bills.

It noted then that a significant number of organisations were considering reviewing their housing allowance in the face of rising rents in the country.

The review of the housing allowance may have come as a sign of relief but the hikes per say did not absorb the rental increases that employees were faced with last year.

As the SEI study says, “However, to the dismay of many employees who had taken advantage of lower rents and upgraded to larger properties in the deflationary period of2009 to 2011, most firms have chosen to not increase the housing allowances in line with recent rent rises.”

“Instead many firms have reminded staff that their allowances had not been cut in the downturn and advised staff to revert to the housing standard that their allowances afford.”

Most HR heads cannot agree more. “We have a policy and the HRA is paid according to the grade of the employee. You have to budget in your housing. We cannot pay for the upgrades that you must have had,” said a HR manager of a multinational bank in Dubai on the condition of anonymity.

A report titled ‘UAE expatriates and the bottom line’ by the Economist Intelligence Unit and sponsored by Friends Provident International reveals the benefits of living in the UAE but highlights some of what it calls hidden costs – factors that can make or break the stay of an expatriate – with the annual rent paying a big role in that.

In absolute terms, rents in Dubai and Abu Dhabi for high-end accommodation compare favourably with those in London, New York and Sydney, but not New Delhi.

But while expatriate-level rents in London and New York are higher, they sit atop a very different rental market with a wider range of options and prices available, it states.

In the UAE, expatriates tend to rent high-end accommodation. Clearly, these dynamics are advantageous to expatriates who own property in the UAE but the majority prefers to rent, it adds.

Annual hikes do make a dent into the incomes of those who rent, but the case was reversed after the 2008-09 global slowdown, when property prices and rents plunged.

While several expats upgraded their rental homes during that period, the recent reversal may be forcing some to scout for cheaper options, the report says.

(Image via Shutterstock)