Living in Dubai

by Mark Benson on December 1, 2009

Will the dark clouds dull the bright lights of Dubai?

Will the dark clouds dull the bright lights of Dubai?

Living in Dubai is a subject which has been in the press on numerous occasions over the last few years, sometimes for good reasons and sometimes for not so good reasons. The economy has taken most of the headlines with regards to Dubai with those living in Dubai having something of a rollercoaster ride in recent times. So what exactly does Dubai have to offer and what are the prospects for the future?

Climate

When you consider that Dubai is situated on the Persian Gulf coast of the United Arab Emirates it will come as no surprise to learn it has a very hot climate to say the least. This well-known UAE state is situated directly in line with the Arabian Desert and as a consequence Dubai has a very hot arid climate with long summers where temperatures can reach upwards of 40°C and even the night-time temperature can be around 30°C. The winters in Dubai are very mild and often very short with an average temperature of 23°C during the daytime and 14°C during the evening. To say that Dubai has a climate that will not suit everybody is an understatement!

Economy

Up until the recent worldwide economic downturn, brought about as a consequence of the credit crunch which began in America, the Dubai economy was one of the boom-time areas of the world. Companies, investors and expats were literally fighting amongst themselves to gain access to Dubai where many people forecast that the economic upturn would continue for many years to come. However, prominent areas such as property and finance grew so fast and to such levels that many people were concerned about the short-term outlook and a possible correction.

However, the Dubai authorities were more than happy to talk up the economy time and time again and invest billions upon billions of dollars into the infrastructure, as a means of attracting overseas investors. When the credit crunch occurred, the Dubai economy somehow managed to rise above the worldwide economic downturn for a number of months only to suddenly fall into a deep downward spiral and literally collapse. Many expats and investors have left the shores of Dubai and many companies have been downsizing their operations with significant job losses and economic difficulties expected in the short to medium term.

Many predicted a decline in the Dubai economy with indepth discussions in the Dubai Fourm :-

“Is the Dubai economic bubble about to burst? From where I am sitting it certainly has developed a big leak!”

Employment

As the Dubai property market rose to levels which many believed were unsustainable, there was a massive increase in the number of people employed within the construction sector and the financial sector also attracted its fair share of internal and overseas investment. We saw the creation of some massive property projects in Dubai and indeed more and more companies began to arrive, seeing Dubai as the future growth area of the Middle East and a potential east meets west opportunity to sell their services and their wares in the area.

Unfortunately this economic boom in Dubai was funded using massive debt which has now come back to haunt the Dubai authorities with a number of companies, some with state connections, experiencing financial difficulties. It is rumoured that the Dubai authorities have built up a debt pile of between $60 billion and $80 billion over the last few years as they attempted to kick-start the “new Dubai” economy. There have been massive job losses in the property sector, construction sector as well as the financial sector and many people believe it will take some time for these areas of the Dubai economy to recover.

Tax

Dubai, and indeed the United Arab Emirates as a whole, is an income tax free haven which has made the area even more popular amongst investors, companies and expats. This is perhaps one of the main reasons why the Dubai authorities have built up a debt pile approaching $80 billion as they look to expand the economy and take a shortcut to success. While there have been various promises of income tax being introduced in Dubai, and the other UAE states, this is unlikely to happen in the short to medium term until the various economies at least have a solid foundation for the future.

While there are no income tax obligations or corporate tax obligations in Dubai you will pay various sales taxes on items such as alcohol and hotel services although in general these are significantly less than you would pay in countries such as the UK. It is likely that the Dubai equivalent of VAT will be used as a potential income earner for the Dubai authorities in the short term rather than introduce income tax to the region. There are obviously enormous benefits for expats moving to the Dubai region with regards to taxation and the potential savings can make life in the area that little bit more comfortable.

Income tax in Dubai is not an issue at the moment, but many in the Dubai Forum believe this could all change :-

“How long before those in charge figure out that one way of resolving Dubai’s ecconomic woes is to impliment taxes on expat incomes”

Cost of living

The cost of living in Dubai is probably a lot cheaper than many people would expect although compared to places such as the UK there can be significant differences in various items you would need in your everyday life. We will cover the cost of property in Dubai in a separate section, but in general while the cost of accommodation, imported food items and branded goods can increase your cost of living substantially, in general the comparison between Dubai and places such as the UK is very favourable to Dubai.

However, as with so many countries around the world, you can make your cost of living as expensive or as cheap as you want depending upon the type of lifestyle you are after and where you want to live. The very fact that taxation is very rare in Dubai, with import taxes significantly lower than those in the UK, does assist with the cost of items such as TVs, electrical equipment and other household goods and even the cost of wines and spirits is still relatively cheap compared to most European and Western countries.

The cost of living in Dubai can vary and is a subject covered in detail in the Dubai Forum :-

“Items that are cheaper in the UK include most clothes, magazines, DVDs & CDs, books & certain imported foodstuffs.

Pools usually have a chiller for the summer months (& sometimes a heater for the winter ones), but can be expensive to run, so factor that in.”

Property prices

As we touched on above, the Dubai property market has emerged over the last decade from literally zero up to the blue sky levels and back down again. This is a market which was literally non-existent 10 years ago and one which the Dubai authorities have invested substantial amounts of money into in the knowledge that overseas and internal investors would race to gain exposure to what many believed was the boom time market of the moment. So what happened?

The cost of a property in Dubai can run into the millions of dollars although it is also possible to rent in certain areas of Dubai for “relatively” low amounts of money compared to the more luxurious end of the market. It is difficult to understand sometimes quite how fast the market has grown and how many investors chased property prices to levels which were unsustainable in the short to medium term. Indeed, as the credit crunch hit we saw numerous large Dubai projects either mothballed or put on hold for the time being as banks and property companies struggled to sell on these very expensive and very time-consuming projects.

At this point in time there is some excellent value for money properties available in Dubai, after the recent upheaval in the property market and the ongoing worldwide economic downturn. Opinion seems to be divided as to whether the Dubai economy, and the Dubai property market, will bounce back in the short to medium term, whether Dubai is a busted flush or whether indeed it will rise again when investors calm down and look to the future.

The clever money would appear to be on a relatively quiet period in the short to medium term and then a general increase in demand and popularity which should see the economy and the property market consolidate and then move ahead.

Finding a property in Dubai is not always easy as many have found in the Dubai forum :-

“I will be relocating to Dubai in the next month or so, and starting work at Du Telecom. Since the office is located in Dubai Media City, I was wondering if someone can advise me on nice apartment complexes near by. I am contemplating getting a car, but would still like the commute to be short.”

Expat communities

The expat community in Dubai is enormous and had been growing at a very impressive rate over the last few years, just prior to the credit crunch and the economic downturn. However, in the short term there are signs of expats leaving Dubai and returning “home” now that the economy is struggling and employment is for many people difficult to obtain. However, there are still many expats living in Dubai who will remain there through these troubled times with various pockets situated across the state.

There are many overseas investors who moved to Dubai and there are also many overseas employees who have obtained employment in Dubai via various company expansions in the region. Initially there were concerns that the Dubai culture would swamp any western influences but the Dubai authorities seem, at least to a certain extent, to appreciate some of the more western ways of life as a kind of concession for overseas investors who have decided to live and/or work in the region.

There has been some confusion as to whether certain western ways of life are overlapping areas of the Dubai culture and whether there could be some potential problems with the law. But until now there has been very little friction between the Dubai culture and the western way of life but that is not to say this will stay intact forever and a day.

There is a large expat community in Dubai offering the chance to find friends when you arrive :-

“I am relatively new to Dubai, been here for around 6 months, looking to make new friends and enlarge my social circle, some fun and down to earth people to hang out with, and do some fun activities with,
anyone?”

Transport network

One of the reasons why the Dubai authorities have built up so much debt is the massive investment in the Dubai infrastructure which also includes a state-of-the-art transport network. While there’s no doubt that in order to attract overseas investors, expats and companies, there was a need to introduce a modern transport network, as well as other facilities, many believe overinvestment on behalf the state will impact upon the short to medium term outlook of the economy – purely and simply because of the debt situation.

Like so many states in the Middle East Dubai has invested significant amounts of money into transport, public services and other everyday sectors which will in the end attract more visitors and more investors and literally pay for themselves.

Conclusion

Dubai is a state which has attracted massive attention over the last decade with an economy which has literally grown from nothing to become one of the investment hotspots of the world. However, the Dubai authorities effectively took a shortcut to the boom time by investing massive amounts of money into the state’s infrastructure in order to attract the attention of overseas investors, companies and expats. In many ways this has been successful but over the last few months we have seen a marked fall in the property market which has spread to other areas of the Dubai economy and indeed the rumoured $80 billion debt built up by the authorities over the years is starting to cause concern.

Even though a number of expats have decided to leave Dubai and return “home” there is still a large expat community in the region and this is likely to grow in the medium to longer term. In the short term the best we can hope for is a stabilisation of the Dubai economy and a reorganisation of the property sector and the financial sector. Unemployment is becoming a problem in Dubai with literally thousands of workers in the public sector left with no projects and no income.

Many economists have very different views on the future of Dubai with some believing that the relative inexperience of the regulators and the ruling family will ensure many investors stay away for some time to come, although others believe the recent downturn is a long-term buying opportunity and the area is still set for growth in the future. In reality the short-term direction of the Dubai economy is shrouded in mystery and indeed there are differing opinions on the medium to long-term prospects.

Dubai has for some time now been a haven for expats looking to start a new life in what was a relatively buoyant economy with the option to gain exposure to the Dubai property sector, which had performed very well just prior to the economic downturn. There are opportunities in Dubai in the medium to longer term although many people are blinded by the difficulties at the moment and unable to look too far ahead.

The Dubai authorities, although they have made mistakes, have invested heavily to give the Dubai economy a strong base for the future. It seems highly unlikely that investors will shun Dubai forever although how and when it will recover and to what level remains to be seen.


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