Housing in the Dubai Marina and Jumeirah Beach Residence area of Dubai. Antonie Robertson / The National
Housing in the Dubai Marina and Jumeirah Beach Residence area of Dubai. Antonie Robertson / The National

Dubai inflation hits six-year high amid sharp rise in housing and utility costs



Dubai residents are feeling the effects of rising prices.

Dubai’s consumer price index rose 4.6 per cent annually last month, the highest since 2009, amid a surge in housing and utility costs.

The Dubai Statistics Center said the consumer price index increased 0.6 per cent month-on-month. Meanwhile, housing and utility costs, which make up about 44 per cent of consumer expenses, soared 7.8 per cent year-on-year and 0.7 per cent from April, the agency said.

The cost of food and beverages, which make up 11 per cent of the price index basket, increased 1.6 per cent from May 2014 while gaining 3 per cent from the previous month.

There is some hope however, economists say, that the UAE may have already gone through the worst of the price rises this year, as retailers typically raise prices ahead of Ramadan.

"Domestic inflation in Dubai is mainly driven by rising rents," said Alp Eke, a senior economist at National Bank of Abu Dhabi. "With lower oil prices, foreign-origin inflation is expected to decline. The most recent housing sales and rental data indicates that rents are declining as well."

“In my opinion, after the artificial price increase during Ramadan, inflation will be in a declining trend,” he said. “The downtrend, which is expected in the next few months, can be attributed to the appreciation of the US dollar against other currencies, the decline in oil prices and softening of property sales prices. Similarly, with lower global food costs, the contribution of food to foreign inflation will be lower.”

Dubai joins Abu Dhabi in reporting higher inflation. The capital registered a five-year high in price increases in April, but in May CPI inflation rose just 0.2 per cent from the previous month, suggesting to economists a steadying in rental prices.

Year-on-year, the Abu Dhabi inflation figure for last month was more or less unchanged at 5.2 per cent.

Housing rents in Abu Dhabi alone rose by 12 per cent last year and another 2 per cent in the first quarter of this year despite the crude oil retreat since last June, according to data from the property broker CBRE.

The rise in school fees is also causing frustration among residents.

Dubai’s Knowledge and Human Development Authority said last week that fees at Dubai’s 117 private schools could be raised by between 2.9 and 5. per cent.

Fees are among the highest in the region. A study last year showed that fees for top British-curriculum schools in Dubai were up to US$23,100 a year, the highest in the GCC.

Dubai and Abu Dhabi are also the most expensive cities in the Middle East for expatriates, according to the most recent survey by the cost of living experts Mercer.

Abu Dhabi and Dubai are the 33rd and 23rd most-expensive cities in the world, respectively, in large part because of a steep rise in rents for expatriates.

Abu Dhabi has moved up 35 places from last year’s Cost of Living survey by Mercer. The cost of living in Dubai has also risen – the city was 67th last year.

Economists estimate that the inflation figure is between three and six months behind current developments in the property market.

mkassem@thenational.ae

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Started: 2021
 
Founders: Iheb Triki and Mohamed Ali Abid
 
Based: Tunisia 
 
Sector: Water technology 
 
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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