Hefty price tag

The removal of rent caps in Abu Dhabi has seen rates skyrocket in the capitalShutterstock

Dubai and Abu Dhabi residents have long felt the pinch of increasing rental costs and wages that aren't keeping pace - and now an independent survey seems to have endorsed that.

The 2015 Mercer Cost of Living Survey saw the country's major cities shoot up the list of the most expensive cities, with Dubai jumping 44 places and Abu Dhabi 35 to occupy the 23rd and 33rd spots respectively on the index, which calculates the cost of living for expatriate workers.

But while Mercer's Middle East Information Solutions leader Nuno Gomes says a chunk of that is attributable to a rise in rental rates, he notes the major reason is the past year's seismic currency fluctuations.

The annual survey, which gathers data from March 2014 to March of this year, took into account the near record-high level of the US dollar in the past few months and the ongoing Greece crisis that caused a continued suppression of the euro. This March the dollar hit a 12-year high against the euro.

"A lot of these rankings are affected by currency fluctuations," says Gomes. "We knew the appreciation of the dollar and depreciation of other currencies would create a lot of movement in this year's rankings [but] we were not expecting Dubai to go up 44 places. Most of that is due to currency fluctuation."

The ranking represents the expense of a given city in comparison to other popular expat cities on the 207-strong list that spans five continents.

The biggest impact of the results will be felt by multinational companies wanting to send employees on assignments across the globe, Gomes says. For example, it is significantly cheaper to send someone to work in Europe because the dollar now buys more euros.

"Currency fluctuations really don't create a lot of changes in the cost of living for someone who has been living and working in a particular city," says Gomes. "It's the same in Europe the scenario didn't change just because the euro lost value. Nothing changed in the way people behave or spend money in their home countries. This is much more impactful for organisations or individuals who work across geographies."

Faisal Durrani, International Research and Business Development Manager of property consultancy Cluttons, agrees. He says the biggest sting will be felt by expats and businesses relocating from Europe - they will now find costs are higher in the UAE and the rest of the region where currencies are pegged to the dollar.

"Its probably the initial cost that may be a bit of a pinch, but once they're on the ground they should find it quite easy to settle in," explains Gomes. "[Prices of] basic goods and services [won't] start falling particularly because most things in the UAE are imported."

The survey is largely intended to help Mercer's clients, typically multinational companies, work out how to best compensate expat employees. That is why, for example, Angolan capital Luanda came out as the most expensive city for a third year in a row; while the city
itself is relatively cheap for locals, the cost of imported goods and safety measures are high.

The survey took a look at 11 key categories including accommodation, cost of utilities, transport, food and dining out using a basket of more than 200 goods.

However, he says the cost of living in the UAE has gone up in real terms as well. "If there had been no currency fluctuations at all during the year, we would still probably see a rise of about ten places in Dubai's ranking."

Gomes says this is partly a result of increased rental and accommodation costs. The cost of living is determined largely by three factors: housing and utilities, transport and food.

Dubai resident Hyder Malik is one of those who has faced the spiralling cost of living, forcing him to consider relocating back to Saudi Arabia. The US-educated oil and gas engineer, who moved to Dubai with his wife and parents three years ago, says his growing family-he
now has a daughter who is almost one - is living "from pocket to mouth".

"I have to live a week at a time," he says. "My phone bill comes on the 20th, electricity and water [bills] come on the 28th and my credit card bill comes on the 10th. I feel like am paying bills all the time."

Malik says one who truly wants a life in Dubai must be able to afford it. "Someone once told me this is the life in Dubai, if you want anything you must 'do-buy' - and it's true."

When he took the significant career step his Dubai job offered, Malik's salary nearly doubled. But he says he underestimated just how high the increased living costs in the UAE's most populous city would be.

"I was saving much more back in Saudi Arabia with a much lower salary. In terms of living standards it has been a huge step down. One of the biggest mistakes was [when] I saw my package was almost double what I had been making, so I said I can do it."

Malik traded his central, spacious three-bedroom apartment in a nice tower in Al Khobar on the eastern coast of Saudi Arabia for a two-bedroom apartment half the size and more than twice the cost in Remraam, near Dubai Investments Park.

"I moved here and I'm paying Dh67,000 a year for half an apartment and I'm away from everything. I'm in the middle of the desert."

Despite being assured rent would remain stable when he moved in, Malik has faced two consecutive 10 per cent increases. He says the hikes were attributed by landlords to Dubai's successful bid to host the World Expo 2020 - something Malik says he along with others
in the city will not receive any direct benefit from, apart from ramping up the cost of living. "By that logic, in ten years I'll be paying twice as much as when I started."

Conversely, his wages have not gone up as the oil sector has been hit hard by the plummeting price of oil. "I asked for a raise last month and my boss said. 'Move to a cheaper place.'"

Malik says while he is thankful for what he has and where he is in life, he wants his hard work to pay off in terms of a better standard of living. A Pakistani citizen born in Saudi Arabia, Malik has never lived in Pakistan. He says he does not want to relocate to his country, which narrows his residency options, especially given other traditional expat hotspots such as Singapore and Hong Kong are ranked higher up in the cost of living index.

Simon Gray, Managing Director at Chestertons Middle East and North Africa, sympathises with expats like Malik who have faced continual rental increases. "'Rents in most parts of the city are touching their historic peaks. Dubai [rates] have increased by 30-50 per cent in a short period of one year during 2014, making most areas unaffordable."

He says the majority of expats consider the ability to save for the future an important factor when moving to the UAE. "With the rising cost of living, this is increasingly holding them back from safeguarding the financial security they have been looking for, which makes moving out of the UAE a serious alternative .

"Regulations to safeguard the interests of tenants from being exploited by landlords will have to be strictly put into force to ensure that landlords do abide by them, which will, in tum, deliver confidence to the general public:" says Gray.

Durrani, meanwhile, wants to see affordable housing made a priority by the government, although Dubai has recently taken steps in this direction. In April, Dubai Municipality put forward a proposal to the Executive Council to impose a mandatory quota for affordable housing, which would result in 50,000 low-cost housing units being built.

"We need to start seeing less supply in the luxury segment," says Durrani. When 30-40 per cent housing equity is required, affordable housing is the only answer for many long-term renters, he says. "That is not the kind of money people have lying around in their bank accounts and they have to rent longer and are trapped in rental limbo."

The glut of towers due to come online over the next few years will also not be enough to impact rental prices. "You're still looking at an extra 400,000 people in Dubai and the current supply pipeline suggests [that] projected population growth will easily surpass what's been planned," explains Durrani. "The argument about risk of oversupply is exaggerated. I think they're actually quite well matched."

Most people are currently spending about half their incomes on rent, which is lower than the 2008-09 peak, where up to 70 per cent was spent on rent, but still "probably quite unsustainable". However, all things considered, Durrani says Dubai and Abu Dhabi are still good options.

"Dubai and Abu Dhabi are exceptionally attractive to the under-25s as [these are] places they aspire to live and move to, and that's not going to change," he says.

"The cost of living kind of comes with the territory when you're creating a global hub - you're never going to create a place that's worth living on the cheap."

Fuel is inexpensive in the region, while the cities are much more affordable than many other world-class cities, notwithstanding the fact that purchasing power typically rises when people relocate to the tax haven. Durrani also has good news for those looking for a breather.

"Housing and food make up half the index and those are the two things we're expecting
to stabilise and probably see prices fall over the remainder of the year, so we will see some of that heat fall away going forward," he says.

Gray agrees, saying he expects the rental market to stay in "self-correction" mode until next year.

Source: Amanda Fisher, Special to PW


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