Saturday, July 14, 2007

Can You Afford It?

Can you afford it?

It's the big question on everybody's lips - just how expensive has life in Dubai become?The signs of inflation are everywhere - from spiralling rents to the price of apples in the supermarket.And if the cost of hamburgers is anything to go by then Dubai has become one of the most expensive cities in the world.

Buying could still be viewed as fairly significantly cheaper here in Dubai than it is in Geneva.
According to recruitment firm Kershaw Leonard's Cost of Living Dubai Report 2007-2008, the emirate is now the third most expensive place in the world to buy a Big Mac burger from McDonald's - US$2.72 compared to US$1.66 in the cheapest place, Hong Kong.
And a recent study by consultancy firm ECA International ranked the emirate as being the 14th most expensive city to rent accommodation out of the 92 it surveyed.
The International Monetary Fund (IMF) estimates the rate of inflation in the UAE at around 10% across the UAE - but believes it could be much higher in Dubai. In this special report we reveal the true cost of your Dubai lifestyle - and ask, can you afford it?
Perhaps the biggest indication of just how high accommodation costs have risen in Dubai is the fact rental costs are now on a par with Geneva - one of the most expensive cities in Europe.
Kershaw Leonard's study compared the cost of renting a four-bedroom villa in the Meadows development with the cost of renting the same size of property in prestigious areas of Geneva and the similarities are staggering.
While the Dubai property costs US$6,000 a month to rent, the Geneva villa costs US$6,275.
Meanwhile a newly built three-bedroom apartment in the Burj Residences will cost occupants US$4,000 per month while a similar property in Geneva costs US$4,600 a month.
Mike Hynes, managing partner of Kershaw Leonard, admits he was surprised by the price parallels between the two cities.
"We chose to compare Dubai to Geneva because Dubai has moved from being a growing city to a world city, which begs a price comparison with other world cities.
"Geneva is generally regarded as one of the most expensive places to live in Europe so I honestly thought there would be a greater disparity between rents in the two places.
"But to all intents and purposes the rent is the same, which makes Dubai a very expensive place to live in world terms."
Experts agree that rocketing property prices are having the biggest impact on the cost of living in Dubai.
Ajit Karnik, professor of economics at the University of Wollongong, says: "The main driving force of inflation in Dubai is the cost of property. If that had remained stable then most people would have been able to absorb other increases in cost."
But it is so significant that families in particular are really being squeezed.
"He blames the steady rise in the cost of accommodation on the fact that demand for housing continues to outstrip supply."
There is a continual influx of outsiders coming in and demand has shot up.
"And although there is talk about supply coming on stream in 2007 and 2008, that assumes that demand will not continue to rise even further."
According to Karnik, the estimated 65% rise in rental prices in Dubai is supported partly by the fact that many expatriates receive allowances for accommodation from their employers so they can afford the increases.
"These people can afford to pay the rents being quoted and once demand starts to match whatever is being asked for there is unlikely to be a downward pressure on rent," he claims.
Meanwhile, he says, the price of freehold property in has received a big boost from the introduction of freehold property laws allowing expatriates to buy.
Property ownership
In the area of freehold property the price of villas has seen the biggest increase with the value of two, three and four-bedroom properties in the Springs, Meadows and Arabian Ranches developments shooting up by up to 50% in the past year alone.
Prices of four-bedroom villas have risen over 45% at Jumeirah Islands, 49% in parts of the Ranches and 35% at Green Community West.
Five bedroom villas rose around 43% in the Arabian Ranches, over 30% on the Palm Jumeirah and 18% in the Meadows between 2006 and 2007.
The price of freehold apartments in Dubai has also shot up with the biggest increase seen in the price of one-bedroom apartments at International City - the price of which have risen by 60% in the past year.
One-bedroom apartments in other areas have seen relatively small rises - 15% at Jumeirah Beach Residence, and Jumeirah Lake Towers and around 5% at Dubai Marina and Discovery Gardens.
However, two-bedroom apartments have rocketed by 50% at Dubai Marina, 40% at the Greens main buildings and around 28% on the Palm Jumeirah.
Alongside rising house prices, the associated costs of actually buying a property in the UAE have risen sharply, reflecting the boom in the country's property market. Mortgage interest rates have risen on average between 0.5% and 0.75% compared to this time last year, from 8% on average to 8.5% now.
This translates into an actual average increase in monthly mortgage repayments of around 15% for buyers.An example of what this means in real terms is that the monthly repayments for a three-bedroom villa in The Springs have increased by around 55% - from AED13,380 one year ago to AED20,925 now.
Despite these increases however, buying a property in Dubai compared to in Geneva remains significantly cheaper.
While the cost of buying a four-bedroom semi-detached Type 1E villa in the Springs is between US$760,000 and US$890,000 the cost of a similar property in Geneva is between US$970,000 and US$1,300,000.
Similarly a four-bedroom detached villa in the Meadows costs up to US$1,450,000 compared to up to US$2,250,000 for a four-bedroom villa in Geneva.

"Buying could still be viewed as fairly significantly cheaper here in Dubai than it is in Geneva, despite the fact that renting is still very much on a par," says Hynes.

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