Tuesday, November 06, 2007

Rents deliver a knockout blow

UAE residents are reaching breaking point over the country's mounting rents. In an effort to cut costs, people are moving to cheaper homes, sending their family home or changing their lifestyle. Some have even considered turning their backs on the UAE.

Almost a third of respondents to a survey on UAE accommodation said rent increases have forced them to move out of their home in the past 12 months, while two thirds said the general cost of living has made them consider abandoning the country altogether.

Responding to a YouGov survey commissioned by Gulf News, 64 per cent of Asians said they have considered leaving for good, compared to 70 per cent of Arab expats and 74 per cent of Westerners. Even a quarter of Emirati respondents said they have thought about turning their back on the UAE and 30 per cent said they have been forced to move house within the country in the past 12 months.

The overall response suggests that unless the inflated cost of UAE living is addressed, an exodus is a worse case, but realistic, scenario. The YouGov survey was based on 513 respondents with a representative sample from each nationality grouping, 59 per cent living in Dubai, 20 per cent in Sharjah and 14 per cent in Abu Dhabi.

The figures show that rent is by far the primary cause of residents' concerns. 70 per cent of those renting said they have contemplated leaving, compared to 43 per cent of home owners. When asked whether increasing rents have led them to this view, as opposed to price inflation of other living costs, more than half of all respondents said yes. Almost one in five said they have moved to another emirate, a figure which suggests some success in northern emirates' efforts to bill themselves as a cheap alternative to Dubai. Although some residents will go as far as moving house or leaving the UAE, most will try to adapt their lifestyle to accommodate the cost of renting accommodation. Asked what options they would seek if rent becomes too much to bear, a third said they would move to a smaller home. The response indicates strong demand for low-cost studios and one- or two-bedroom flats - an undersupplied sector of the housing market which real estate developers are only now beginning to turn to. Around a third of all respondents said they would consider moving out of city centres, 26 per cent said they would cut expenditure on other things and 20 per cent said they would share with other people.

The statistic reveals that some people who arrived in the UAE expecting to live a high standard of life in good quality city accommodation are being disappointed. For those with large families, the cost of rent can be much more than just a financial burden. The survey revealed that some families are being broken up as a result of rent increases. 15 per cent of all respondents said they have been forced to send their family back to their home country. Cases of split families were more frequent among Asian respondents (23 per cent) than Westerners (3 per cent), Emiratis (14 per cent) and other Arabs (14 per cent). A break-down of residents' monthly expenses reveals the extent of the rental burden. A staggering one in every five respondents pays more than half of their monthly income on rent. Expat Arabs (19 per cent) and Asians (14 per cent) are the most likely nationalities to do this. One of the main options to paying high rents is to buy property. The survey reveals that this is one the key driver in encouraging people to buy with one in four saying they have bought to avoid renting -good news for the mortgage market. Emiratis are the most likely to do so, perhaps indicating that they are in the best position to buy. In terms of property ownership, close to nine in ten respondents rent their home and of those who own, 57 per cent own outright while the remaining 47 per cent have a loan/mortgage against it.

To combat UAE rental inflation, all seven emirates have introduced caps on rent increases for renewed tenancies. According to the results of the YouGov survey, residents have mixed feeling on the move's effectiveness. Only 9 per cent said they have been very effective, 40 per cent considered the move slightly effective and 41 per cent viewed them as slightly or very ineffective. The mode rent cap recommended is 5 per cent per year. Key to residents' doubts over caps could be a tendency among landlords to evict tenants whose contracts are up for renewal, allowing the landlord to negotiate a rent with a new tenant, which would not be restricted by the cap - a trend which the UAE is tackling. Despite governmental intervention in the rental market, three quarters of respondents called on it to play a stronger role in controlling rate increases. Unsurprisingly, 80 per cent of those renting were in favour of stronger government intervention, compared to just 57 per cent of those who own (and perhaps rent out) property - a sign that landlords prefer rental rates to be dictated by market forces.
Looking ahead to next year, the outlook is grim among residents. More than eight in ten think rents will increase in 2008, with only four per cent expecting them to fall. Views are mixed among nationalities. Only 58 per cent of Emiratis expect a rent hike, compared to 95 per cent of westerners, 78 per cent of Asians and 77 per cent of Arab expats. The situation portrayed by the YouGov survey will not come as a surprise to the UAE population, but we now have the figures to support people's concerns. Residents are awaiting the country's response.

Source: GulfNews