Rise in rents, inflation may hit Dubai hard

Qatar, 24 May 2005

DUBAI: Miriam's landlord has given her an ultimatum - pay up or get out of your suburban Dubai villa. Miriam received an annual rent bill of 90,000 dirhams ($24,500), up almost 40 percent from 65,000 dirhams her family has paid for the past seven years for the three-bedroom house.

"We will manage to pay it, but a lot of our neighbours can't and are moving out," said Miriam, one of the hundreds of thousands of expatriates that account for 80 percent of the population of the Gulf Arab emirate.

Her plight is mirrored across Dubai, which lures large numbers of new expatriates to fuel its break-neck development. "It is certainly an issue," said Elaine Jones, chief executive of real estate consultancy Asteco. She said the growth of Dubai's population exceeded even the most bullish expectations in 2004, after growing 7 percent in 2003 to 1.2 million. One firm said its office rent was up 40 per cent.

Economists warn that rising inflation may dent Dubai's drive to diversify. Standard Chartered bank put inflation at eight per cent in Dubai last year, with rent the main factor. Prices have also risen for basic goods and services including food, schooling and health care. The official inflation figure is around three per cent.

UAE nationals benefit from subsidised housing, as well as free schooling and health care. Recruitment consultancy GulfTalent said in a survey that rent in the UAE rose 26 percent in a year while the average salary increase was 1.5 percent.

Most of Dubai's consumer goods are imported, and a dirham weakened by its peg to the US dollar has driven up their cost. "Prices of food and non-food items have risen, on average, 10 to 15 per cent over the past two years," said Marwan Al Thani, manager of major retailer Union Coop.

In a bid to offset inflationary pressures, rulers of several emirates raised the salaries of state employees by 25 percent for UAE nationals and in some cases by 15 percent for expatriates. After the hike, Economy and Planning Minister Sheikha Lubna al-Qassimi set up three committees to control commodity prices. Hanna fears this could stoke inflation even further. "The wage policy the government has set could lead to a second round of inflationary pressures," he warned.