Inflation data released this week provides some justification for a degree of concern about the UAE economy. It reveals that the national inflation rate rose to 2.9 per cent, with Abu Dhabi inflation increasing to 3.7 per cent and Dubai jumping to 4.2 per cent. The standout statistic was again from Dubai, where 43.7 per cent of household income is now spent on housing – well above the accepted wisdom that rent should be no more than one third of net income.
Rental costs are, of course, a hot topic across the Emirates. As The National reports today, HSBC’s Expat Explorer found that 58 per cent of those surveyed in the UAE believe rental price fluctuations are a threat to their financial well-being.
Prices in Dubai have risen to the extent that many lower-income workers now live outside the emirate, resulting in rising prices in Sharjah and the Northern Emirates. Those who stayed put have faced rental rises that, in some cases, have exceeded 20 per cent year on year. Some relief has arrived though, with average villa and apartment rents dipping slightly – by 3 per cent and 2 per cent respectively – in the last quarter after two and a half years of rises.
Residents in the capital have also seen their housing costs rise, thanks to the removal of the 5 per cent rent-increase cap a year ago. Apartment and villa prices were stable in the third quarter but are up significantly year on year.
Generally, market forces will ensure that supply meets demand, but the UAE’s growing population creates a slightly different dynamic. The time lag between the identified need for extra housing and its availability puts pressure on the price of existing stock.
The effect of rent rises and other cost-of-living increases is also magnified by the fact that there has been little or no growth in wages for many workers in recent years. The danger is that people on low to medium incomes will be priced out of the market and skilled expatriates may consider leaving the country, a point the HSBC Expat Explorer survey appears to confirm. But all these factors can be managed by a mix of sound policy and market forces.
