Soaring rents threaten Dubai's economic miracle

UK, 23 May 2005

DUBAI (Reuters) - 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 per cent 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 per cent 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 per cent in 2003 to 1.2 million. One Dubai-based firm said its office rent was up 40 per cent.

Dubai is one of seven emirates in the oil-rich United Arab Emirates. Dubai's ruling al-Maktoum family is spearheading an ambitious investment programme with real estate, trade and tourism the main drivers.

Foreigners are lured by tax free and well-paid jobs in the bustling city known for its vibrant nightlife and relatively liberal atmosphere in a conservative Muslim region. 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 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 3 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 per cent in a year while the average salary increase was 1.5 per cent.

It predicted relocations from Dubai to cheaper emirates and "an increased turnover in the job market". Nine per cent 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 U.S. 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."