Why the UAE has become more affordable for expats

Dubai and Abu Dhabi fell out of the world’s top 25 most expensive cities.

The UAE has become a more affordable country now for expats as the cost of living has declined despite the introduction of value-added tax (VAT) earlier this year. This can be attributed to a consistent fall in rents, a strong local currency and lower oil prices last year.

According to Mercer’s annual cost of living survey, Dubai and Abu Dhabi fell out of the world’s top 25 most expensive cities. Dubai dropped from 19 to 26 while the UAE’s capital city ranked 40 as compared to 22 in the previous year’s ranking of the world’s 209 most expensive cities.

Market analysts attributed this to the decline in rents, strengthening of the dollar-pegged dirham against other currencies and lower oil prices. They believe that, going forward, VAT will not have a big impact on the UAE’s cost of living because the recent measures announced by the UAE government such as freezing and reducing certain fees across different sectors of the economy will have a much bigger and positive effect on the finances of UAE residents.

Whilst the decline in property rents across the UAE is largely cited as the biggest reason for a drop in the UAE’s cost of living, the strengthening of the US dollar-pegged UAE dirham has resulted in the cheaper importing of food and other items into the UAE which also has a positive effect on the overall cost of living in the UAE.

Last year, rents across the UAE fell between 10 and 15 per cent and this trend continued into 2018 with prices falling a further 5 to 10 per cent. According to a report by the Dubai Chamber of Commerce and Industry (based on data by Euromonitor International, nearly half (41 per cent) of the country’s consumer expenditure goes towards housing.

Behind housing, the second biggest expenditure for UAE residents is food and beverage which accounts for approximately 14 per cent of total expenditure. Based on these statistics, it is no surprise that the combination of a continued decline in real estate prices and the strengthening of the UAE dirham has caused such a significant shift in the affordability of the UAE from an expat perspective.

Another contributing factor to the affordability index of the UAE is the continuation of low oil prices. Last year, oil prices remained low, only slightly increasing from June to December 2017. This is starting to change, however, and the UAE has seen fuel prices rise for three consecutive months.

Despite this slight rise in recent fuel prices, at the time of the Mercer’s survey, one liter of petrol in Dubai cost $0.61, while it cost $0.70 in New York and $1.65 in London. Similarly, rent for a two-bedroom apartment of international standards costs an average of $2,995 in Dubai, while it costs an average of $5,700 in New York and $4,335 in London.

Better still, the UAE government has stressed its commitment to reducing the overall cost of living for its citizens with recent announcements of reforms and regulations by the authorities. The UAE government has promised to implement steps to either freeze or lower fees across various sectors with the aim of lowering the cost of living and ease of doing business, whilst at the same time, improving competitiveness and boosting the overall economy. Furthermore, such government reforms are likely to have a far-reaching and mitigating effect on value-added tax (VAT) which was introduced at the start of this year.

Given the decreased relative cost of living in Dubai compared to other cities around the globe, the UAE continues to be an attractive destination for expat employees, despite the two UAE cities ranking as the most expensive in the Gulf. Globally, six out of the top 10 most expensive cities are in Asia, with Hong Kong at the top of the list, followed by Tokyo, Zurich, Singapore, Seoul, Luanda, Shanghai, Ndjamena, Beijing and Bern rounding off the top 10 cities. At the opposite end of the list, Tashkent, Tunis, Bishkek, Banjul and Karachi are the top five least expensive cities.

Source: Khaleej Times