You may have spent your whole life mastering the nuances of money. Well, you can forget most of it and start over because many of the rules are different in the UAE, where even the most seasoned financial wizards can find themselves bewildered. Even old-timers are confused occasionally as many of the policies put in place when the country was still in its infancy are evolving to match the needs of its growing, ever-sophisticated population.
Here, we put together a quick guide to how best to manage and invest your hard-earned cash, as well as a friendly quiz so you can see whether you qualify as a financial guru or may need to head back to the books. Banking Want to hear a strong opinion? Ask UAE residents how they feel about their banks. The reason for such forceful reactions is twofold: one is that the quality of customer service varies widely around the country, and the second is that our banking needs are so central to our motivation for moving here.
"Something like 80 to 90 per cent of us would say we are here to create wealth and save money. You need to find a bank that suits your requirements," says Richard Musty, the managing director of Lloyds TSB Middle East. The choice of a bank is a decision that deserves some due diligence. The frustrations of many consumers are rooted in the differences in how banks operate in the UAE versus many other countries around the world.
To start, new residents will find that their relationships with banks in their home countries will not transfer to banks in the UAE, even if they operate under familiar international brands such as HSBC, Citibank or Lloyds. "We try to make it as seamless as possible, but when you move to a new country you have to start a bank account anew. It is a different regulatory regime," says Mr Musty. One key difference in the UAE is the close tie between the employer and the bank.
To open an account, most banks will require potential customers to produce a letter of employment so that salary transfers can be made directly into the account. In addition, when the employee leaves the company, the employer is required by law to notify the bank. The bank will then freeze the account until all the associated debts are paid, or the customer provides a new letter demonstrating new employment.
In many cases, the bank will also determine what type of account the customer is eligible for based on the amount of the salary - the higher the salary, the more services and lower fees to the consumer. The UAE is in the midst of developing a credit bureau that will evaluate consumers based on their histories but it is not yet fully adopted by banks. Mr Musty argues that even without a credit bureau, the most responsible banks will evaluate customers for credit cards and personal loans based on the full range of their assets. But some banks will make those decisions based almost exclusively on salary, while others will consider the size of outside investments including property. Before opening an account, Mr Musty recommends finding out how a bank makes its lending and account decisions.
Some expatriates complain that the fees associated with their bank accounts and personal loans are more substantial than what they are accustomed to, so experts suggest customers read the schedule of fees and charges even more closely than usual before opening an account. Finally, newcomers to the country often do not realise the punitive implications of bouncing a cheque or falling behind on their debts. This is especially true because some banks will require customers to post a security cheque that the bank can cash to cover outstanding debts. If the cheque bounces and the bank makes a police complaint, the customer could be arrested.
Mr Musty says trouble can often be averted through open communication with the bank. "The best advice I can give is that if a customer's circumstances do change, go sit down with your bank and work it through," he says. Investing When British expats James Read and his wife, Rebecca, were choosing where to put their savings, they found it difficult to pull the trigger. They found the multiple options dizzying, and the quality of investment advisers they met with left much to be desired.
"It's quite scary. You have to be a lot more wary," says Mr Read. The Reads eventually signed on with a financial planner, who set them up with a monthly investment programme in an offshore mutual fund. But "I gave her a proper grilling" before signing, says Mr Read. That is a sound approach and not only because the UAE's unregulated environment leads to dodgy behaviour by some financial advisers.
The question of how best to maximise savings is of critical importance to many UAE residents. Most advisers say that expats should invest their money in the currency of the country where they plan to retire, negating the impact of any currency fluctuations. For many, an attractive option is an offshore fund that shields the earnings from taxes (the UAE does not levy taxes, but many countries will seek to collect taxes from their citizens living abroad if the income is generated within their borders).
The US is an exception, as the country's Internal Revenue Service takes a much stricter stance on offshore investing. Vince Truong, a certified financial planner in the US, says offshore funds represent too much risk for most Americans. More locally, residents may wish to partake in the country's growth through participation in the local bourses. However, most advisers say that, as a rule, most expats are already heavily invested in the country's future by moving here and thus do not need further exposure.
In addition, the UAE stock market is classified by the indexing agency MSCI Barra as a "frontier" market (a competing index from FTSE recently upgraded the country from "frontier" to "secondary emerging market"). What this means is that the markets are not fully developed and come with some elements of risk not present elsewhere. This can be seen in the volatility in the past few years. The Dubai Financial Market and Abu Dhabi Securities Exchange were among the top performers in the world during the early part of the 21st century, but are down more than 75 and 50 per cent respectively in the past five years. There are signs of an upswing, with each bourse posting solid gains last month.
It is also worth noting that for most stocks, foreign ownership is limited to 25 per cent of a company's shares. Some companies, including Abu Dhabi telecom operator Etisalat, are closed to foreign investment entirely. Property Back in 2002, foreigners became eligible to own property in Dubai, kicking off a roller-coaster ride that has still not come to a full stop. The market has evolved in significant ways, but it remains a treacherous place for those unfamiliar with its customs.
With so many new developments under way, many properties during the boom were sold as "off-plan", meaning before construction even began. That era is unlikely to return anytime soon given the current credit environment, but many buyers learnt the hard way the importance of securing a valid contract that specifies the obligations of the developer. As the first lawsuits from that era are now being settled, it is clear that buyers who possess clearly worded, signed contracts are faring better in the courts.
That lesson is perhaps most relevant in Abu Dhabi, which did not make property ownership available to non-Emiratis until 2005. As such, in designated "free zones" including Al Raha Beach, Reem Island and Saadiyat Island, many units are only now being handed over to buyers. Many other announced projects are in the early stages of construction. Unlike in Dubai, foreign buyers in Abu Dhabi are only eligible for 99-year leases.
Dubai property prices in some areas are down as much as 70 per cent since their peak and even less-volatile Abu Dhabi has seen declines of near 50 per cent, leading some to suspect the market is near its bottom.David Eddy, the director of Gulf Lending Network, says it is a misconception that banks are not lending money for property purchases. "It has improved dramatically in the past year. There is a wide spread of interest rates across the board and it is definitely worth looking around," he says.
However, he says many borrowers not familiar with the process can grow frustrated if they do not know what to expect. One wrinkle is that some banks will often ask for a security cheque or cheques that they could cash if the borrower misses payments. Mr Eddy says he has rarely seen banks exercise this option, but it does make borrowers vulnerable if they encounter financial difficulties. Some banks will also require that mortgage payments come via a direct salary transfer from the borrower's employer.
It is also likely that the bank will require borrowers to purchase life insurance with coverage that at least matches the amount of the mortgage. Not all banks will accept existing coverage as sufficient and may require borrowers to purchase their own policies, Mr Eddy says. For current owners and those thinking of joining their ranks, the strata law being implemented in Dubai - and rumoured to be on the way in Abu Dhabi - will give them more of a say in deciding a building's service providers and therefore more control over expenses. On the flip side, it requires that some owners invest their own time to make those decisions and also take on the responsibility of managing absentee owners and those who do not pay their fees promptly.
Insurance Most of us understandably focus on the financial benefits of the UAE, but it is easy to cancel out that considerable upside if the right protection is not in place against a potential setback. And especially here, it is critical to make sure not only that you have insurance coverage but that you have the right coverage. For one, says Tim Searle, the chief executive of the Dubai financial planning firm Globaleye, many expats arrive in the UAE thinking their insurance needs are already covered because of existing policies. But in many cases, a life-insurance policy written in another country is not valid once the insured establishes residence in the UAE.
"Most domestic policies only work if you are in that country" where the policy was written, Mr Searle says. An international policy designed for expats could be a good solution. However, potential buyers should be aware that the premiums will likely be higher than what is available for a domestic policy, as the underwriting is less precise for expatriates, says Mr Searle. Most financial advisers in the region offer both whole-of-life and term policies, with the main difference being that whole-of-life includes an investment component. These policies are more expensive as a result and consumers should make sure the policy they are buying fits with their overall investment plan and that they understand the rules associated with the policy.
The guidelines are similar with health insurance. In Abu Dhabi, the Government requires that employers provide medical cover for all employees. In Dubai, it is not a requirement, but most companies offer it as a benefit. Regardless, consumers should study the terms of their coverage closely. In particular, expats should be clear on what options they have in case of a serious illness. Not all policies allow patients to choose their doctors, or travel outside the country for treatment.
One alternative to consider is a critical-illness policy that provides supplemental coverage to an existing policy. When it launched its cover last year, Friends Provident International said its research showed that 42 per cent of UAE residents have no coverage in case of an illness that prevents them from working. The FPI policy covers 35 critical illnesses, including cancer. Drivers must show proof of valid insurance coverage to register a car in the UAE. The minimum amount required is third-party coverage protecting you against damages to another vehicle or person. By paying a little extra, you could add protection against fire, theft and damage to your car or injury to other passengers. As always, make sure the type of coverage matches your needs. For example, if you are planning to spend weekends off-roading in Oman, be sure your policy covers any damage that may result from such activity outside the UAE.