TonToo much Good news can be bad. Dubai, the commercial capital of the United Arab Emirates (United Arab Emirates), with a lot of the former in the past two years. Looser restrictions during the pandemic have attracted expats. Russia’s invasion of Ukraine brought another influx of new residents.
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High oil prices exacerbate the feeling of boom times. Restaurants and bars are heaving. Traffic during peak hours has returned to pre-pandemic levels. The number of passengers transported by public transport hit a record high in February.
For some residents, though, the good news is vexing. Annual inflation hit a 14-year high of 7.1% last summer, partly because of soaring gasoline prices (unlike other Gulf states, United Arab Emirates Fuel is not subsidized). It has since fallen to less than 5%, lower than many other rich economies. But headline numbers don’t tell the whole story.
Official inflation data for 2022 showed that housing and utilities, which account for 41% of the consumer price index, rose by just 0.6%. However, these track all leases and so do not reflect recent rent increases; many in Dubai have felt the increase has been larger. Apartment rents are estimated to have risen 28 percent in the year to February to nearly 100,000 dirhams (about $27,200) CB Richard EllisA property company.
Three factors explain the surge. One is demand, from Russians and other newcomers. Many people want to live in the trendiest areas of Dubai. On the artificial island of Palm Jumeirah in the Gulf, a two-bedroom apartment that rented for Dh100,000 two years ago can now fetch Dh215,000.
Second is the booming real estate sales market. Apartment prices were around AED 1,200 psf, the highest in nearly a decade. Some investors who bought homes early in the pandemic sold them two years later for profits of 50% or more. Rising house prices have left some landlords unscrupulous, demanding rent increases of more than the legally permitted 20 per cent a year.
Dubai’s real estate market has a lot to recommend it, from low taxes to a large pool of potential renters. But one wonders if the industry, the backbone of Dubai’s economy, is once again in a bubble. The city has already seen two housing crashes this century: a sudden one during the 2008 financial crisis, when property values halved, and a slower crash from 2014 to 2020, when up 35%.
Buyers are still pouring in, but some rents may have peaked.In popular areas such as Palm Jumeirah and Downtown Dubai, house prices were said to be flat or down in February CB Richard Ellis. Instead, they’re growing in less-than-desirable inland areas — a sign that renters are voting with their feet.
Other prices are climbing. Annual food and beverage inflation topped 6% in February.this United Arab Emirates Price caps have been imposed on some key food items in 2022. Petrol prices, while reasonable by global standards, hit record highs last summer. Authorities shut down a local newspaper after reporting the problem. Tuition fees are the burden of expatriates.
Despite Dubai’s reputation as a modern El Dorado, salaries in Dubai have not kept pace with rising prices. Cooper Fitch, a consultancy, estimates they will grow only about 2% this year.
This rapid inflation should be temporary to some extent. Rental prices are likely to fall as landlords lower expectations and new homes hit the market.
Some economists believe that United Arab Emirates Efforts should be made to reduce the tax burden on residents and businesses. It introduced a 5 percent value-added tax in 2018 and will introduce a 9 percent corporate tax in June. Even while introducing formal taxes, it has retained many charges that amount to invisible taxes, such as the high housing surcharge added to Dubai’s electricity tariffs. In January, the emirate did suspend its 30% alcohol tax — perhaps to comfort residents who wanted to forget about their new leases. ■
