x Abu Dhabi, UAEFriday 19 January 2018

Welcome to a costly tax-free life

Working in the UAE may offer high salaries for professionals, but soaring housing and food prices cost more than some will bear.

Once through passport control at Dubai airport, the cost of moving a family to the UAE takes many by surprise.
Once through passport control at Dubai airport, the cost of moving a family to the UAE takes many by surprise.

ABU DHABI // When Matthew Laubengayer moved into his one-bedroom apartment in Dubai in 2004, he congratulated himself on getting such a good deal. Four years down the line, however, he's not so happy. Now married, there is not enough space in the rent-capped flat to live comfortably with his wife, new baby and live-in nanny, but he cannot afford to move. "We would like a bigger place but even doubling our rent wouldn't cover it," he says. "I just can't have my rent doubled or tripled overnight."

His experience is the same as that of many thousands of professional expatriates who have come to the UAE, drawn by expectations of high, tax-free salaries and a villa-and-pool lifestyle. With rents escalating out of control, the costs of moving to and setting up in the country are taking many by surprise - as is the bureaucracy involved in bringing a whole family here. One woman, who wants to remain anonymous, says living her with her five-year-old daughter is a financial strain. "Certainly, I think 'What am I doing here?' I have dragged my child half-way around the world to be here, yet the expenses are such that I have to ask is it worth it financially? I don't believe it is. Thirty to forty per cent of my salary is going on rent. School fees are extortionate. They boast of a tax-free environment here but there are other ways the Government takes your money."

Her daughter's visa and health insurance has already cost Dh7,000 while the annual fees for her kindergarten are Dh38,000. This will jump to Dh53,700 when she enrols in school. "It is not just the set-up costs, there are long-term costs that you have to pay every year," she says. "This tax-free environment is not as tax-free as everybody wants you to believe. If it gets worse financially, as I expect it will due to increasing rents, it will not be possible to stay."

Although professional expatriates are estimated to make up less than 8 per cent of the population in the UAE, these high-earners are vital for the country's development. They are also likely to be the first to leave if jobs, lifestyle and earning potential are not quite as they were led to believe by the companies that have recruited them. "It is not that employers hoodwink staff but they are not being realistic as they want people to move over here," says Colleen Robinson, business development manager at a relocation company.

"The biggest problem is that expectations are not set properly before expatriates come here." Transport and food costs are two factors that are taking bigger bites out of budgets than before. A lack of public transport and unreliable taxis leave most professionals with no choice but to rent or buy a car within months. Last year, inflation accelerated to a 20-year high of 11.4 per cent and, according to some experts, will rise to 11.8 per cent this year. Food inflation alone could be as high as 40 per cent this year, according to the Emirates Consumer Protection Society, which means that eating out, or dining in, is not as cheap as it once was.

After the headache and expense of finding a home, the next cash-sapping challenge for newcomers is furnishing it, an exercise that can cost tens of thousands of dirhams. For those with children, while one of the greatest problems can be actually finding school places, paying for them is no less daunting. Compared with last year, tuition fees have risen up to 50 per cent for some grades at private schools amid a national shortage of places - a situation that is leading some parents to defer the start of their children's education for a year.

Furthermore, the Government is studying the impact of introducing VAT by 2010. Although it is only likely to be between three and five per cent this would, in effect, mean the end of the UAE's claim to being a tax-free society. Peter Michelmore, chairman of the British Business Group and senior partner of law firm Reed Smith, says that moving here has also become a more bureaucratic process. "We do see an increasing degree of administrative complexity that was not apparent a few years ago," he says.

"We should not be surprised by that in a young society with a rapidly growing economy and expatriate workforce where issues of demographics and security are properly matters of concern." However, while he believes that "at the moment this is not impacting development", he sounds a note of caution. "It could impact development in future as part of an accumulation of issues, both push and pull, including economic recovery in the West, which reduces the relative attraction of doing business here," he says.

For now, at least, with the US sliding into a recession, major western financial institutions failing by the day and stock markets gyrating, the UAE remains an attractive proposition. There is a downside to this, however. As The National reported on Thursday, for the past six months bankers fleeing the credit crunch have been flocking to the UAE in search of financial security, putting even more pressure on the housing stock. Vijay Gandhi, a general manager at Hay, a consultancy, says: "The UAE is an attractive place to be for the professional cadre as there is a lot of growth potential and salaries at managerial level continue to be among the highest in the world.

"It is becoming costly and inflation is a major economic issue not only in the UAE but in most of the emerging markets. Although the disposable income has fallen over the last few years, it remains an attractive place, especially in these times of economic downturn in the West where many companies, particularly in the financial sector, are filing Chapter 11 bankruptcy. We are not facing a business downturn yet."

William Buck, the Middle East director of Macdonald & Company, a high-end recruitment company, says that many professionals who may never have considered the UAE before are now applying for jobs. "The real-estate and financial sectors are depressed markets globally," he says. "They are not taking people on, they are making redundancies, but here it is booming. Candidates who may not have previously considered the Middle East are now moving here. This is definitely a trend that we are seeing with property professionals."

The good news, he says, is that when the many new properties being built across the UAE come on stream, the pressure on the rental market will ease, making the country an even more attractive proposition. "Certainly, the rental situation is the biggest bugbear in the market," he says. "However, this is a question of supply and demand. When the huge proportion of properties being built, especially villas which are in short supply, the market will correct itself. You only need to look at the mass developers and see when their projects are due to come online."

However, this may all be too little too late for many expatriates, disappointed that their Arabian adventure has fallen short of expectations. One estate agent says she has had people sobbing in her car as she drove them around to potential apartments, as they were horrified at what was available now within their budget, while Ms Robinson says that she has even had customers who have left the country before their shipment of belongings has arrived from back home.

"This is something I expect to see more and more," she says. Mr Laubengayer says: "When people are offered their salaries when they are still overseas they think the package is fine but then they get here and realise that they can't find an apartment for their budget. They may have been living in a two-bed and now they are having to downsize to a studio." The English-language centre he manages has been a successful business for 15 years, yet he is unable to set his budget for next year due to the uncertainty over what the rent cap will be fixed at.

"Small- to medium-size businesses will not be able to operate due to the uncertainty and rising prices," he says. "You go to the shop you have always gone and it is not there any more. Something else will come along and take its place but you wonder how long they will be there." The unspoken question hanging over the future of the UAE's development is this: if the highly qualified professionals leave and close down their businesses, who will replace them?

CK Ravish, head of human resources at Easaa Saleh Al Gurg, which employs 4,000 people across 23 companies, says that quality is being compromised because Indian professionals, such as engineers, are being offered comparable wages to remain in their own country while staff the company has taken years to train are being poached. "It doesn't matter that we have a good reputation and name," he says. "People are being poached as they are attracted to the higher salaries due to the high cost of living here. I can't compensate as it will upset the apple cart.

"When we go overseas to recruit, people already know that rents in Dubai and Abu Dhabi are too high so it is difficult to attract talent in the first place. We are being compelled to look in other parts of the world, such as the Philippines, and we may have to compromise on the competency and quality for a while as we train them." For Vanessa Batchelor, a marketing manager from the UK who has been living in Abu Dhabi for 20 months, the UAE "has become an insecure place to live.

"You cannot make any long-term plans. This must have an effect on business as it makes you think, what is the point in doing anything if you are not here for the long-term? "The Government needs to do something about the rental situation. They are not thinking of the long-term knock-on effect. The local population is small and there are not enough qualified people to run industries. There will simply be nobody here to do the work at every level of job."