Soaring rents, inflation pose threat to Dubai

Bahrain, 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, leaving everything from luxury beach villas to pokey downtown studios in short supply.

"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 Dubai-based firm said its office rent was up 40 per cent. Economists warn that rising inflation may dent Dubai's drive to diversify in order to compensate for dwindling oil reserves.

"The most fundamental question is could Dubai price itself out of being a business hub?" asked Daniel Hanna, an economist with Standard Chartered in Dubai.

The bank put inflation at 8 percent 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 3 percent.

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. It predicted relocations from Dubai to cheaper emirates and"an increased turnover in the job market". Nine percent of 500 people surveyed said they planned to leave the country due to the high cost of living, it added. 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. "It is hurting our customers on lower incomes. "At the other end of the scale, fees at some luxury Dubai golf clubs are rising, as wealthy managers and entrepreneurs queue to join the most exclusive courses.