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Dubai’s increasing housing costs push inflation rate to five-year high

  • File - The Cayan tower (C), the world's tallest twisted tower stands at Dubai's Marina on June 11, 2013 in the United Arab Emirates, UAE. (AFP PHOTO/KARIM SAHIBSAHIB)

DUBAI: Dubai’s inflation rate climbed to the highest since August 2009, led by a rise in the cost of housing, the biggest component on the consumer price index.

Prices were up 3 percent in April from a year earlier, the Dubai Statistics Center said in a statement Wednesday. Gas and housing climbed 15 percent and 5.3 percent, respectively, raising the housing sub-index 4.9 percent. Dubai’s inflation rate is rising as the economy is forecast to expand at the fastest rate since 2007.

Domestic output will expand 5.1 percent, according to International Monetary Fund estimates, on growth in the hospitality and trade industries. Dubai’s benchmark index climbed 44 percent in 2014, the fastest pace globally, while passenger traffic in its international airport may beat London’s Heathrow this year.

“Caution is warranted in interpreting the official index, as anecdotal evidence, and data from locally based real estate companies suggest that price pressures are actually broader- based and higher,” said VTB Capital’s chief Middle East and Africa economist, Raza Agha.

The housing index climbed 1.2 percent in 2013 even after property prices increased 35 percent, the most in the world, according to a report by Knight Frank LLP. The housing index includes gas, water and maintenance and accounts for 44 percent of Dubai’s CPI. Details of Dubai’s gas contracts are private.

Many Dubai residents have less disposable income as rising inflation and a housing fee bite into wake hikes, according to Emirates NBD PJSC, the emirate’s biggest lender.

Wages in the United Arab Emirates rose an estimated 5 percent in 2013, and are forecast to increase similarly this year, according to recruitment specialist Hays Plc. Expatriates, who form a majority of Dubai’s 2.25 million people, pay a 5 percent annual housing fee and don’t receive subsidies on utilities as Emiratis do.

“If they want to maintain spending on discretionary things like clothing, entertainment or electronics, they either have to tap into savings or borrow money,” Emirates NBD’s head of research for the Middle East and North Africa, Khatija Haque, said by phone.

Real estate price increases eased this year after the Land Department doubled transaction fees and the UAE’s central bank tightened mortgage lending rules, Haque said. The official index is unlikely to show the decline in growth yet because of a data lag, she said.

Residential values rose 3 percent in the first quarter, compared with about 6 percent in the last quarter of 2013, according to a Cluttons report published May 12.

“The macro-prudential regulations are starting to have an impact because people can’t secure mortgages at these prices,” Haque said. “Not too many people are able to put down the required 25 percent deposit to secure a mortgage on a villa.”

 
A version of this article appeared in the print edition of The Daily Star on May 23, 2014, on page 5.
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Summary

Dubai's inflation rate climbed to the highest since August 2009, led by a rise in the cost of housing, the biggest component on the consumer price index.

Gas and housing climbed 15 percent and 5.3 percent, respectively, raising the housing sub-index 4.9 percent. Dubai's inflation rate is rising as the economy is forecast to expand at the fastest rate since 2007 .

The housing index climbed 1.2 percent in 2013 even after property prices increased 35 percent, the most in the world, according to a report by Knight Frank LLP. The housing index includes gas, water and maintenance and accounts for 44 percent of Dubai's CPI.


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