More than half of UAE expatriates say they moved to the country to increase their income and a fifth of them say their salaries doubled when they relocated to the Emirates, a study from HSBC found.
Twenty per cent of those polled by HSBC for its Expat Explorer 2018 study said their yearly wage doubled in comparison to their earnings before their move to the UAE, with the average annual expatriate salary of $155,039 (Dh569,500), the sixth highest globally. The study surveyed 22,318 expatriates from across the globe, including around 900 in the UAE.
According to HSBC, the UAE is now the fourth best country for economic prospects for expatriates – up one place from last year – with 67 per cent of those polled having “more disposable income thanks to higher earnings and the tax-free environment”.
“We are seeing an interesting dichotomy among UAE expatriates,” said Marwan Hadi, head of retail banking and wealth Management, HSBC UAE. “Eighty-five per cent say they are able to build up their savings and pay off debt, yet 93 per cent are not fully aware of or have explored their financial options. It is clear many are missing the opportunity to make their wealth work for them.”
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New to the UAE guide part 2: banking, saving, investing and sound financial advice
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The National reported last week that salaries among Dubai's workforce have dropped on average as recruiters drive a harder bargain and the job market undergoes a natural correction.
Dubai's income level, as measured by GDP per capita, stood at $45,000 in 2013, before falling to $37,000 in 2018. It is expected to fall again to $36,000 in 2020, according to a new analysis by ratings agency Standard and Poor's. Experts said the development marks a maturing of the market, however, HSBC's study indicates that salary offers in the UAE are still favourable to overseas applicants.
While Switzerland topped HSBC’s list of global destinations with the biggest pay packets, with an average expatriate salary of $202,865, the US took second place at $185,119 and Hong Kong came third at $178,706. The UAE took sixth position on the ranking.
David Mackenzie, the managing director of the GCC recruitment consultancy Mackenzie Jones Group, said it is “true” that people relocating to the UAE are looking for a big raise. However, he says the Emirates cannot be entirely considered tax free. “If you are a recruiter in the UK on an annual salary of £34,000 (Dh164,290), for example, then you will look at moving to the UAE on Dh20,000 per month. At £49,702 a year, this represents an increase of £15,702 but in real terms (once you factor in the 33 per cent tax they were paying in the UK) the increase actually sees them £26,922 a year better off – that’s a pay increase of over 118 per cent,” he said.
Mr Mackenzie said the issue is that the UAE cannot be considered tax free due to the presence of VAT.
"And with the big increase in living costs, that is, utilities, Salik and rent, then the percentage increase is a lot lower," he said.
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HSBC said non-Emiratis can capitalise on their higher earning potential more effectively with the “right financial planning”. The study found the top investment priority for UAE expatriates is buying property for 48 per cent of those polled, followed by retirement for 53 per cent.
A shift in how residents save and invest is also likely in the future after the UAE government unveiled a new retirement visa last month that allows those aged over 55 to stay in the country for an extra five years with the possibility of renewal once the term is up.
“Traditionally, expatriates have channelled most of their investments outside the UAE often to their home country. However, the recent announcement by the UAE Government to afford special residency visa privileges for expatriate retirees has certainly paved the way for more to consider their long-term plans in the UAE,” said Mr Hadi. “Already two-thirds live here for more than five years, and as expatriate-friendly reforms come forth, we might see more expatriates settling their roots down here.”
To qualify for the five-year retiree visa, set to be available from 2019, residents over 55 must either have an investment property worth at least Dh2 million, financial savings of Dh1m, or an active monthly income of Dh20,000 or more.
While property experts expect a surge in new business from older residents looking to qualify for the visa, according to the HSBC survey, only 17 per cent of those polled own a property in the UAE. Plus, a typical expat only keeps a fifth of their wealth in the Emirates.
Steve Cronin, the founder of DeadSimpleSaving.com, a website to help residents invest their money themselves, said those with sensible spending patterns can find their spare money builds up fast in the UAE.
"They often don’t know what to do with it because offshore investing is a bit more complex and they aren’t used to having so much money," he said. "There are plenty of horror stories about off-plan property investing, pension transfers and fixed-term savings plans. So people sit on their cash because few companies have the incentive to show them a cheap and smart way to invest."
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How to invest in gold
Investors can tap into the gold price by purchasing physical jewellery, coins and even gold bars, but these need to be stored safely and possibly insured.
A cheaper and more straightforward way to benefit from gold price growth is to buy an exchange-traded fund (ETF).
Most advisers suggest sticking to “physical” ETFs. These hold actual gold bullion, bars and coins in a vault on investors’ behalf. Others do not hold gold but use derivatives to track the price instead, adding an extra layer of risk. The two biggest physical gold ETFs are SPDR Gold Trust and iShares Gold Trust.
Another way to invest in gold’s success is to buy gold mining stocks, but Mr Gravier says this brings added risks and can be more volatile. “They have a serious downside potential should the price consolidate.”
Mr Kyprianou says gold and gold miners are two different asset classes. “One is a commodity and the other is a company stock, which means they behave differently.”
Mining companies are a business, susceptible to other market forces, such as worker availability, health and safety, strikes, debt levels, and so on. “These have nothing to do with gold at all. It means that some companies will survive, others won’t.”
By contrast, when gold is mined, it just sits in a vault. “It doesn’t even rust, which means it retains its value,” Mr Kyprianou says.
You may already have exposure to gold miners in your portfolio, say, through an international ETF or actively managed mutual fund.
You could spread this risk with an actively managed fund that invests in a spread of gold miners, with the best known being BlackRock Gold & General. It is up an incredible 55 per cent over the past year, and 240 per cent over five years. As always, past performance is no guide to the future.
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
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Company Profile
Founder: Omar Onsi
Launched: 2018
Employees: 35
Financing stage: Seed round ($12 million)
Investors: B&Y, Phoenician Funds, M1 Group, Shorooq Partners
Dirham Stretcher tips for having a baby in the UAE
Selma Abdelhamid, the group's moderator, offers her guide to guide the cost of having a young family:
• Buy second hand stuff
They grow so fast. Don't get a second hand car seat though, unless you 100 per cent know it's not expired and hasn't been in an accident.
• Get a health card and vaccinate your child for free at government health centres
Ms Ma says she discovered this after spending thousands on vaccinations at private clinics.
• Join mum and baby coffee mornings provided by clinics, babysitting companies or nurseries.
Before joining baby classes ask for a free trial session. This way you will know if it's for you or not. You'll be surprised how great some classes are and how bad others are.
• Once baby is ready for solids, cook at home
Take the food with you in reusable pouches or jars. You'll save a fortune and you'll know exactly what you're feeding your child.
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Key changes
Commission caps
For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:
• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term).
• On the protection component, there is a cap of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).
• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated.
• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.
• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.
Disclosure
Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.
“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”
Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.
Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.
“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.
Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.
How to get exposure to gold
Although you can buy gold easily on the Dubai markets, the problem with buying physical bars, coins or jewellery is that you then have storage, security and insurance issues.
A far easier option is to invest in a low-cost exchange traded fund (ETF) that invests in the precious metal instead, for example, ETFS Physical Gold (PHAU) and iShares Physical Gold (SGLN) both track physical gold. The VanEck Vectors Gold Miners ETF invests directly in mining companies.
Alternatively, BlackRock Gold & General seeks to achieve long-term capital growth primarily through an actively managed portfolio of gold mining, commodity and precious-metal related shares. Its largest portfolio holdings include gold miners Newcrest Mining, Barrick Gold Corp, Agnico Eagle Mines and the NewMont Goldcorp.
Brave investors could take on the added risk of buying individual gold mining stocks, many of which have performed wonderfully well lately.
London-listed Centamin is up more than 70 per cent in just three months, although in a sign of its volatility, it is down 5 per cent on two years ago. Trans-Siberian Gold, listed on London's alternative investment market (AIM) for small stocks, has seen its share price almost quadruple from 34p to 124p over the same period, but do not assume this kind of runaway growth can continue for long
However, buying individual equities like these is highly risky, as their share prices can crash just as quickly, which isn't what what you want from a supposedly safe haven.
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