UAE Rent Inflation & Impact on the Job Market

Transcription

1 RESEARCH UAE Rent Inflation & Impact on the Job Market United Arab Emirates 2005

2 UAE Rent Inflation & Impact on the Job Market EXECUTIVE SUMMARY Recent increases in accommodation rentals across the UAE have been the subject of considerable debate. GulfTalent has conducted a survey of professionals employed and resident in the UAE in order to quantify the magnitude of rent inflation and evaluate its possible impact on the local job market and the wider economy. The survey suggests that UAE residential rents have increased at an average rate of 26% relative to last year, while the average salary increase stood at just 1.5%, with most respondents reporting no salary increase at all. Public sector employees received the highest increase at 2.8%, followed by multinationals at 2.0%, while average raise in local companies stood at just 0.8%. Rent versus Salary A v er a g e Ren t In cr ea se A v er a g e Sa la r y In cr ea se 1.5 % Sou r ce: Gu lfta len t % As a result, rent expense as a share of an individual s salary has increased from an average of 26% last year to 32% at present. This represents a substantial fall in net disposable income which is translating into major shifts in employment patterns. About one-third of survey respondents indicated that they intend to ask their employers for higher compensation or switch to a higher paying job with another employer. This ratio for senior executives stood at 55%. Other reactions included lowering personal spending, moving to neighbouring emirates which were cheaper, relocating to other countries, or sending families back home to reduce costs. Based on the results of this survey, GulfTalent predicts an increased turnover in the job market over the coming months, particularly at the senior and executive level. Relocations within the UAE will also accelerate, specifically from Dubai to Sharjah, and from Sharjah to Ajman. 1

3 Rent Increase On average, respondents to GulfTalent s survey had seen their rent increase by 26% relative to last year. However, there were considerable differences by location, type of accommodation and price band. Dubai had the highest overall increase at 27%, followed by Sharjah (25%) and Abu Dhabi with 23% in third place. Average Rent Increase by Emirate Du ba i Sh a r ja h A bu Dh a bi 2 3 % 2 5 % 2 7 % Room rentals experienced a higher increase relative to apartments, reflecting the greater supply-demand imbalance in this segment of the property market. Within the apartment category, those in the lower price bands rose at a faster pace. Dubai apartments with annual rentals in the 10-20,000 Dhs range last year rose at an average rate of 34% while those costing 30-40,000 Dhs last year rose by a more modest 19% on average. Average Rent Increase by Type of Accommodation Room A pa r tm en t 2 4 % 3 1 % Salary Increase Overall salaries went up by an average of 1.5% across all sectors, with most people reporting no increase at all. The public sector benefited the most with an average increase of 2.8% for government employees. Average reported increase for multinationals stood at 2.0%, while employees of local companies only received an average increase of 0.8%. Average Salary Increase by Type of Employer Gov er n m en t Mu ltin a tion a ls Loca l Com pa n ies 0.8 % 2.0% 2.8 % Directors and Senior Executives reported the lowest average increase at just 0.7%. Mid-level managers and experienced professionals increase were on par with the overall average, while the most junior professionals had an above-average increase of 1.8%. The lower pay rise for executives may be due to the growing number of senior international executives willing to relocate and work in the UAE, relative to previous years. Average Salary Increase by Seniority Sen ior Ex ecu tiv es Su per v isor / Ma n a ger Ex per ien ced Pr ofession a ls Ju n ior Pr ofession a ls 0.7 % 1.6 % 1.5 % 1.8 % 2

4 Employee Reactions Most employees indicated that the rent increase was a major issue for them. Those for whom it was not an issue were typically staying in company-provided accommodation. When asked how they planned to deal with this issue, responses varied significantly. The most common course of action was to try to switch to a higher-paying job with another employer. The second most popular option was to negotiate a higher salary with the current employer. Other options included cutting personal spending, leaving the UAE and getting a job in another country, negotiating a discount on rent with the landlord, moving to another Emirate, moving to a cheaper accommodation in the same Emirate, sending family back to home country, tapping into savings, taking legal action against the landlord over the rent increase, getting a second part-time job to earn extra income, getting financial assistance from family and friends or borrowing. Overall, almost half of all reactions involved the respondent s employment in some shape or form. 35% of all respondents planned to ask for a pay rise or switch to a higher paying job with another employer. For directors and senior executives, this figure stood at 55%. The ban, although a concern for those planning to switch jobs, did not seem to be enough of a deterrent to attempts at changing employers. Other reactions affecting the employment market included leaving UAE, or securing a second part-time job. Reactions to Rent Increase Switch Employer A sk for Pay rise 15% Spend Less 13% Leave UAE 9% Ask for Discount 7% Change City 7% Change Home 6% Send family back 6% Use savings 5% Legal action 4% Second Job 3% Get Help / Borrow 2% 20% 6% of Dubai-based respondents planned to relocate to Sharjah to secure cheaper accommodation, while 7% of those living in Sharjah planned to move to neighbouring Ajman. Roughly 1 in 4 respondents who worked in Dubai were already living in Sharjah. 12% of Sharjah residents planned to send their family back to their home country, compared to 4% in Dubai and 6% in Abu Dhabi. Among respondents working in Abu Dhabi and Sharjah, 27% and 24% respectively planned to ask for a pay raise. This number dropped sharply to 14% in Dubai, possibly reflecting the greater popularity of Dubai as a destination and the greater bargaining power of employers in this Emirate. Switching jobs was the preferred course of action for men, with 23% seeing this as their main solution to the rent problem, while only 6% of women listed this. By contrast, cutting spending was the preferred option for women (25%), compared to only 11% of men who saw this as their primarily solution. A further 25% of women would choose to negotiate a pay increase with their employer, while only 13% of men planned to actively pursue this route. 3

5 Implications for Business and Employment The data suggest that rent as a percentage of an individual s salary went up from 26% last year to 32% this year. This represents a substantial fall in net disposable income, even before accounting for inflation in other goods and services. To deal with this, UAE residents are taking measures to curb their costs and increase their income. About half of these measures involve the individuals employment. So far, most employers have seen little need to raise salaries, given the apparently limitless supply of fresh expatriates willing to work at existing rates, particularly in Dubai. As a result, many more people than before are looking to job switching as a possible way to raise their income and maintain their standards of living. Rent Expen se a s Percent a ge of Sa lary T y pes of Rea ct ion t o Rent Increa se Em ploy m en t r ela ted Cost cu t tin g 1 9 % 2 6 % 4 7 % 3 2 % The increased turnover in the job market is likely to be greatest at the senior and executive level, where salaries have had the lowest increase and candidates are generally more mobile. Many of the resulting vacancies are likely to be filled with newcomers from outside the UAE, therefore creating a similar churn in other associated sectors such as the property leasing market. Reloca tion (w it h in UA E) Ren t con ta in m en t Fin a n cin g 1 1 % 7 % 1 3 % Relocations within the UAE are likely to accelerate, particularly from Dubai to Sharjah, and from Sharjah to Ajman. This is creating a ripple effect in the housing market, with rent increases in Dubai being passed on to the neighbouring Emirates. This is in addition to home switching within each Emirate, as residents relocate to less expensive neighbourhoods. On the macroeconomic front, the sudden squeeze on individual finances is forcing some residents to tap into their savings, to borrow or to delay repayments on existing borrowing. This may result in a degradation of retail credit quality and potentially higher default rates over the next 12 months affecting the local banking sector. The drive to cut costs could also result in less spending by some residents on retail, restaurant and entertainment sectors where most discretionary spending takes place. However, these sectors are unlikely to be seriously affected as any such fall in demand will be offset by growing consumption from tourists, visitors as well as new residents. 4

6 Methodology This survey gathered data from around 500 people employed and resident in the United Arab Emirates. Participants were asked how much their rent had increased since last year, how much their salary had increased during the same period, how the disparity affected them and how they planned to deal with it. The data collected has been screened and statistically analysed to arrive at the preceding results. About GulfTalent GulfTalent is a leading online recruitment service for professionals, managers and senior executives across the Middle East. Headquartered in Dubai Knowledge Village and serving an active client base across Saudi Arabia, Kuwait and the UAE, GulfTalent specialises in matching top candidates with attractive career opportunities through its internet site. Candidate Registration Employer Enquiries Tel Fax info@gulftalent.com Disclaimer & Copyright This document should be used for information purposes only. GulfTalent makes no claims or warranties regarding the accuracy or completeness of the information provided, and accepts no liability for any use made thereof. The recipient is solely responsible for the use of the information contained herein. GulfTalent.com All rights reserved. 5