Stephen Corley: Is the UAE just getting a bit too expensive? « ArabianMoney
Stephen Corley: Is the UAE just getting a bit too expensive?
Posted on 27 May 2015 with no comments from readers
Hard evidence abounds that life is not very tolerable for many in the UAE at present. A fact to which we will all bear increasing witness in the months to come, as real income, for the majority of inhabitants continues to fall against a backdrop of rising rents, stifling bureaucracy and static salaries.
But this is Vegas and the stuff of dime novels; a cross between Fritz Lang’s Metropolis, Dodge City and the Klondike. Life in the ivory towers continues, with the dream merchants oblivious to the crushing pressures further down the scale.
Monitoring economic activity by the never ceasing sales of top end Range Rovers may have its uses but in the real world one needs to be as rich as Croesus or simply insentient not to have noticed that once again costs are running away with personal and commercial budgets.
Cutbacks coming?
My calculation is that contrary to popular opinion, the Utopian dream will go into reverse and the authorities will have to take action to stem the imbalances. Why?
Because as we reach the midway point of another year of rising costs, individuals and institutions should begin to vote with their feet as Dubai increasingly becomes an unattractive place from which to conduct a life or a business. Runaway costs killed many a goose that laid the golden eggs and there is no such thing as a special case, despite what the shiny suited property agent tells you.
For every tax escapee, launderer or lotus eater, there are fifty more individuals who are here for work and family and simply striving to achieve some sort of balance. Each unlived in property on the Palm is counterbalanced by hordes of others crammed to the gills with minimum wage earners fighting to the next pay packet.
The banner headlines state all is well in tinsel town; we are the happiest and most content of societies, business is booming and everyone is looking forward to the next frenetic burst of asset inflation with the coming of Expo 2020. Really?
Loads of money
Things don’t add up. At a recent round table economic summit, delegates were asked to consider the cost of expatriate life here. This included renting or buying a three-to-four bed house in an established residential area. The annual outlay for this was deemed to be in the region of $65,000.
There’s no advantage to moving further from the centre because frequently real estate in the new build areas is more expensive because of perceived lifestyle advantages. School fees for two children will come in at $38,000 without obligatory trips.
Throw in food bills, which are now conservatively double what they were seven or eight years ago, a vehicle (everyone has at least two) and then open a separate chapter on the endless charges for bureaucracy, ranging across everything from visas and housing taxes to good conduct and no objection certificates.
The staggering verdict was that this costs $156,000 per annum. That’s net costs, without savings or pension or holidays. It ranks alongside 2014 GDP per capita of $63,000 in the UAE. According to the 2015 Hays Salary Guide to the UAE, with marginal exceptions, only C Suite executives earn over that amount.
Can this stack up?
The simple question it poses is how will the city survive without large salary hikes, a regular supply of new tax exiles or another property boom?
The last seems inconceivable. Bear markets in Dubai property are historically correlated with bull trends in the US currency. Both massive downturns in 2008 onwards and 1997-99, coincided with the dollar’s headlong rush northwards. Primary responsibility falls at the feet of the inverse correlation between oil prices and the US dollar.
In the last year, the US dollar index has risen nowhere near the collapse in oil prices, which has provoked a staggering reduction in oil revenues estimated at over $400 billion. Every $10 drop in oil prices shaves off 4.2 per cent of GDP from GCC current account balances. Whilst the UAE is better protected than some, nobody escapes this storm.
* Stephen Corley first worked for the Rothschild family in his long City career and now runs a company doctor consultancy Oryx Projects from Dubai. He writes exclusively for ArabianMoney.