Influx of rich expats pushing up UAE inflation, says IMF panel

Reuters

• Influx contributed to rents rising faster than expected
• Top real estate buyers are from India, the UK, Italy, Russia and France 
• Services inflation caused by arrivals who are not sensitive to prices

The influx of affluent migrants into the UAE has contributed to the country’s rising inflation, but also presents new opportunities for the Gulf state.

A Henley Global Citizens report published in August forecast that the UAE will record the largest net inflow of millionaires on record, adding an additional 4,000 high net worth individuals this year, overtaking traditional havens such as the US and UK.

Russia tops the list of countries expected to see a net outflow of millionaires in 2022. It is followed by China, India, Hong Kong, Ukraine, Brazil, the UK, Mexico, Saudi Arabia and Indonesia.

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“[The influx of affluent individuals] has absolutely contributed to the robustness of demand and the recovery that we’ve seen in domestic demand over the past year or so,” said Khatija Haque, chief economist and head of research at Emirates NBD, during a public briefing of the IMF’s October 2022 Regional Economic Outlook for the Middle East and Central Asia.

“I think it has contributed to inflation in housing. In particular, we’ve seen the rents going up much faster than we were expecting coming out of the pandemic.”

Average rental rates on villas, townhouses and apartments rose 60 percent, 35 percent and 36 percent year-on-year, respectively, in the third quarter of 2022, according to a report from real estate brokerage Betterhomes.

Rents have skyrocketed amid the shortage of ready properties in the market.

Demand has been boosted by a confluence of factors. These include the influx of Russian and Eastern European expats seeking safe refuge from geopolitical instability and high net worth expatriates from across the globe choosing Dubai as a new long- or part-time residential location.

Other factors raising demand include new UAE golden visa benefits tied to real estate investment, and a growing trend of existing residents investing in property as a long-term view on making the UAE their primary home.

Reuters/Albert Gea

Residential real estate transaction volumes rose 60 percent and an 85 percent rise in the value of property sold in the first half of the year, according to Betterhomes.

The top buyers were from India, the UK, Italy, Russia and France, in that order.

Betterhomes said the number of Russian buyers surged 164 percent in the first half of this year from the first half of 2021.

Investors from Russia and the 11 other Commonwealth of Independent States (CIS) countries now represent more than 20 percent of potential homebuyers in Dubai, according to research published by Dubai-based residential property consultancy Mira Estate.

The average ticket size ranges from AED 2.5 million ($680,000) and AED 25 million for high net worth individuals.

The IMF said that, as in much of the rest of the world, inflation has continued rising in many Middle East and North Africa countries in 2022 and has become broad-based, leading to a cost-of-living crisis in most of the countries. 

Headline inflation for the region is projected at 14.2 percent on average in 2022 and is expected to remain in double digits in 2023 for the fourth consecutive year. 

For oil exporters, the IMF added, high oil prices and robust non-oil GDP growth are offsetting the impact of high food prices, with their economies foreseen to grow 5.2 percent, up from 4.5 percent in 2021.

However, growth will likely slow to 3.5 percent in 2023 as OPEC+ production increases wane, oil prices decline, and global demand quietens.

Haque said inflation driven by the influx of the wealthy is something that policymakers are likely looking at, but that it was not “something that can be fixed quickly, nor can it be fixed through government policy really”. 

“What we need to see is an influx of supply, and we are expecting that to materialise with a number of new projects being launched on the housing side and the pipeline of real estate that’s expected to come on to the market,” she said. “I think that will help to stabilise that situation.”

Haque added that inflation is also up in the services industry including dining out, entertainment and leisure.

“We are also seeing acceleration in services inflation [because] we’ve had the influx of people who are not as sensitive to the price of going out to dinner, and that has contributed to increases in prices,” she said.

However, Haque said that the UAE’s policy of currency stability through the dirham pegged to the dollar will help ease the pain as the US currency soars.

“One of the benefits of being a pegged currency is that the cost of importing commodities gets cheaper as the dollar strengthens, and we have seen an incredible rally from the dollar, That will help to offset some of the inflation we are seeing in services,” she said.

“Overall I do expect inflation in the UAE to slow over the next 12 months or so as commodity prices stabilise.”

Jihad Azour, director of the IMF’s Middle East and Central Asia department, said the inflow of new population is a growth opportunity for the UAE and wider Gulf economies, as well as other nations seeing migrants as a consequence of the ongoing war between Russia and Ukraine. 

Even in the short-term, there are opportunities, he said, pointing to the chance to tap into the expertise from the new population.

“The new wave of people coming [in] is an opportunity – especially those who are from Russia and Ukraine – because their knowledge input can improve the capacity to produce [and] it provides additional output.

“Policymakers can make small changes that will allow those who are transiting to stay not only to buy a house but to open a shop and create jobs and transfer knowledge and knowhow.”

Dubai has for years been regarded as a ‘safe haven’ for foreigners and today is home to people of over 200 nationalities.

The total number of people with fortunes of at least $1 million in Dubai rose by 18 percent to 67,900 in the first six months of this year, the report said, putting the city on track to break into the world’s top 20 wealthiest destinations by 2030.