Dubai Residents Priced Out As Living Costs Rise

Dubai’s economy is undoubtedly in recovery mode following a slump four years ago. Rising rents and crowded roads signal that the emirate is bouncing back, with some even forecasting another boom.

Indicative of a rebounding economy, industry reports predict a trend of rising salaries in the coming months.

However it is yet to be seen if such hikes are in line with Dubai’s rising cost of living and surging rents.

According to a recent study by New York-based consulting firm Mercer, companies in the UAE are giving their employees an average wage increase of 5.2 per cent in 2013 but are offering only a minor boost in housing allowances.

The poll recorded an increase of eight per cent in housing allowance for UAE employees, just slightly higher than the 6.7 per cent increase recorded last year.

Residential house prices and rents have been shooting up in Dubai in the past year. According to a Jones Lang LaSalle report, house prices were reported to have surged as much as 22 per cent this year.

The report forecasted that both rents and property prices will continue to rise in the next 12 months but mentioned that the rate at which it has been increasing will slow down.

Industry experts have attributed the sudden rise in rents and prices to political stability, trade links, a diversified economy, regulatory infrastructure and an attractive tax environment compared to other Middle East countries.

However the rise in rents is yet to register with employers.

“One of the main reasons we have not seen the increase that the market expects is because most organisations feel that housing costs have not reached the pre-crisis levels and allowances have not been reduced in the aftermath,” said Nuno Gomes, Mercer’s information solutions leader for the Middle East.

“As a result, the current amounts should be sufficient to accommodate employees’ housing needs.”

Stagnant Pay Can Be A Competitive Disadvantage

Despite the UAE’s salaries ranking higher than the global average, supplementary costs too are shooting up.

According to Dubai Statistics Centre, on the basis of consumer price data, inflation in Dubai rose to its highest level in the last four years in October. Housing and utility costs, which accounts for almost 44 per cent of consumer expenses rose 3.2 per cent year-on-year and 0.2 per cent month-on-month respectively in October.

Though food and beverage prices rose by 1.8 per cent annually, October prices fell 0.4 per cent from the previous month.

In a Bayt.com salary survey of UAE professionals, released earlier this year, 28 per cent of professionals said their salaries increased only marginally while another 28 per cent reported a moderate increase. Around 19 per cent of respondents said there was no change.

The majority of professionals surveyed attributed their salary hike to inflation and the rising cost of living while around 80 per cent said that rising rents constituted a major part of their living expenses.

But as business confidence picks up ahead of the Expo 2020 bid, Dubai’s disproportionate rise in salaries in relation with rents could act as a competitive disadvantage in retaining talent at later stages.

“It is worth noting that according to the Bayt.com MENA Salary Survey (May 2013), 47 per cent of UAE respondents believe that their loyalty is 70 to100 per cent linked to their remuneration, thus indicating that salary is a key driver for corporate loyalty for a majority,” said Suhail Masri, vice president of sales, Bayt.com.

“This general trend is seen across the Middle East that companies must begin to address; in doing so, they will be able to contribute to building employee loyalty and satisfaction, and will have the opportunity to reduce the number of employees looking to change jobs within the next year.”

Masri said that despite the housing allowance given to UAE employees being the third highest in the region, rising living costs for residents are a cause for concern.

“The majority of UAE respondents say that rising rents have affected the increase they see in their cost of living, which is higher in this category than all countries aside from Kuwait,” he said.

“This does point towards housing allowances not being feasible.”

The UAE is primed for strong growth in the coming years with officials estimating its GDP to expand by 4.5 per cent this year alone.

Dubai has traditionally attracted the best of region’s expat workforce due to its attractive tax-free benefits and high standard of living. But as the economy and employment levels improve, offering employees an attractive package, which balances the rising cost of living, including rents, with the current market levels will be key to retaining talent.