The prospect of getting relief from the rising cost of living in the UAE seems gloomy, as a recent report confirms that the situation has become worse than ever before.
Recruitment consultant Kershaw Leonard recently released its comprehensive report on the cost of living in the UAE, compiling prices of almost all requirements of living, from air tickets, school and medical charges to golf club membership fees.
The 60-page report showed that the prices of housing, food, transportation and travel, education, medical and healthcare have all generally ramped up in the last 12 months.
The smallest increase was two per cent for the annual renewal registration of sports utility vehicles. The biggest was 122 per cent for the highest level of school fees in Dubai.
Judging by the trend in price movements, it appears that Dubai is now well on its way to raising its ranking as one of the most expensive cities in the world to live in, with inflation set to rise further, according to Kershaw Leonard managing partner Mike Hynes.
"Dubai is fast approaching Central London pricing. If you look at other reports that have been carried out, I think Dubai has been shooting up the scales, and there's no sign that it's stopping," Hynes told Gulf News.
Hynes said higher prices are almost an inevitable consequence in a city like Dubai, where a massive explosion in development is taking place.
He added that rising food prices, the new driver of inflation, as well as the proposed value-added tax (VAT), are only going to make matters worse.
"There are no signs that the rental market and the housing market, generally, are under control. So the factors, as we can see, that are driving inflation are not under control and there's no sign that they're [getting there]. So, the forecast has to be that the cost of living in Dubai is set to continue to increase."
Expectations
Marios Maratheftis, regional head of research for Standard Chartered, said the findings of the report provide further evidence that inflation expectations in the UAE are now "getting out of control".
"It is worth bearing in mind that expectations tend to be self-fulfilling, which suggests that they can translate into even higher inflation in the future. There is a need to tighten liquidity through monetary policy, and this cannot happen without altering the (US dollar exchange-rate) peg," Maratheftis said.
The rising cost of living in the UAE is influenced by a combination of global and local factors, which include world food prices, the declining US dollar and the country's strong economic growth, according to Monica Malik, chief economist at investment bank EFG-Hermes.
She said that the local capacity constraints associated with the strong investment drive spreading across the GCC are a driving force behind rising inflation levels. She noted that, in a growing economy, there is a rising demand for housing due to a huge influx of people, and when supply fails to meet demand, prices rise.
"A lot of the price increases are linked with where we are in the economic cycle right now," Malik told Gulf News.
While the report paints a gloomy picture, Piyush Mathur, regional managing director of research organisation The Nielsen Company, said it is nothing to be alarmed about, because the rising costs are being balanced out by high job prospects and state of personal finances in the UAE.
"On one side, you have education, healthcare and other costs rising, but on the other side, the job prospects and state of personal finances are increasing at a significant pace as well. So, the good side kind of balances out the negative aspect. If both sides of the pendulum are going down, then that would be a real gloomy situation," Mathur told Gulf News.
Hynes said that the rising costs are indeed affecting residents in the UAE, but there is a split as to how these are impacting people.
While those earning a good living may only have to cut back on certain "palatable" aspects, such as going out for dinner or changing beach clubs, Hynes said those who are at the bottom of the pay scale will have to face more difficult choices, such as sending the children or family back to their home countries.
Nasir Iqbal from Pakistan, who has been in Dubai for six years, said escalating prices are making him consider relocating abroad. Nasir's annual expenditure on housing has quadrupled from Dh12,000 to Dh48,000 in just one year.
And, since his salary is only enough to meet his own direct needs, Nasir said he can't afford to take his wife from Pakistan to live with him in Dubai.
"Life is tough for me. I don't have time for relaxation because I have to work from morning to evening to meet my expenses. I've been cut off from my friends also because they can't afford to live in my neighbourhood, which is a bit expensive compared to where they're staying in Dubai," Nasir said.
Anusyia Nathan from Malaysia said she has to cut back on her spending to be able to save some money, as rental and food prices are hurting her pockets.
"Now I'm paying Dh7,000 a month for my accommodation compared to Dh5,500 last year. If you spend Dh100 at the grocery now, you will go home with about five items. Last year, Dh100 can get you about six to seven basic items," Anusyia said.
According to the report, the cost of renting apartments and villas in Dubai has gone up by as little as eight per cent to as much as 77 per cent between 2007 and 2008, depending on the size and location of the property.
Confirming previous reports, Kershaw's data showed that in some areas in Dubai like International City, Al Barsha, Green Community and Dubai Marina, some apartments have posted lower increases, between eight and 12 per cent.
Prime spots
But new prime spots such as the Burj Residence in Downtown Burj Dubai have registered the biggest increase in apartment rents in one year. A two-bedroom flat in the area has increased by 42 per cent and a three-bedroom by more than half (57 per cent). In Mirdif, a four-bedroom villa rental skyrocketed by 77 per cent.
However, Dubai and Abu Dhabi seem to have outstripped the three strongest markets in the United States. Kershaw examined the rents for a two-bedroom apartment in the UAE and found that the average median monthly rents in Dubai and Abu Dhabi ($1,811 and $2,264 respectively) are higher than those in New York metro area ($1,729), San Francisco ($1,685) and Boston ($1,528).
As for food, the report confirmed that a basket of basic items that cost Dh151.50 in 2006 now costs Dh180.45, posting an almost 20 per cent increase over a two-year period.
The same scenario is reflected in the transportation and travel category. For instance, a basic taxi fare per kilometre in Dubai rose by three per cent to Dh1.75, while monthly car rentals increased by six to 80 per cent, depending on the type of vehicle. Likewise, travelling outside the country has edged up a bit, with economy air tickets to London, Philippines, Mumbai, Paris and Singapore rising by between three and 11 per cent.
Price increases in the education sector are even more dramatic. For kindergarten 1 level at schools with a Western curriculum, the maximum fees went up from Dh29,687 to Dh66,000, showing a 122 per cent increase. The significant increases were attributed to the entry of new schools, which are exempt from hike restrictions.
The upward movement in prices is likewise recorded in the medical and healthcare sector. The cost of visiting a general physician at the leading international-standard hospital in Dubai has more than tripled in four years, the report said. Middle-end hospitals showed an aggregate increase of around 20 per cent.
Yet, despite the gloomy figures, Hynes said the future of Dubai or the UAE looks "very rosy", given the influx of investments and the huge stream of expatriates and visitors.
"There's still a huge amount of investments and a huge number of people wanting to come here. There's massive opportunity to make this place really outstanding. But, to do that, you have to make sure that the people who are making it happen will stay here, and be happy to be here," he said.
