Wealthy migrants to UAE boost luxuries but stir inflation

Alamy

• 6,700 HNWIs expected this year
• Lured by tax, privacy, lifestyle
• Inflation pressures a concern

The UAE is likely to attract a new surge of ultra-rich migrants, lured by low tax rates, high-privacy settings and a luxurious lifestyle, at a time of global geopolitical upheaval and heightened anti-money laundering measures in developed countries. 

But, while the wave of wealth is likely to stimulate specialised sectors of the economy, the arrivals may heighten inflationary pressures, experts said.

A report by Henley & Partners, which advises on international migration, forecast around 6,700 high net worth individuals (HNWIs) will relocate to the UAE by the end of 2024 — nearly double the number expected to move to the US this year.

Dominic Volek, Henley’s group head of private clients, said in the report that investment migration can serve as a powerful mechanism for economic diversification.

The influx is expected to escalate demand for luxury real estate, driving up prices and rental yields, Kassim Dakhlallah, a UAE-based economist, told AGBI.

“This could lead to a construction boom in projects catering to the affluent market segment,” he said, indicating broader economic stimulation and job creation.

Diana Nilipovscaia, CEO at luxury real estate developer MERED, predicts “heightened competition” for luxury properties and greater developer focus on branded residences. 

Dubai is already among the top three branded residential markets globally, according to Savills, the real estate consultancy.

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Lewis Allsopp, chairman of Allsopp & Allsopp, pointed to the Gulf state’s tax free environment for income, property and salaries as a significant draw, contrasting with tax regimes in places like the UK or the US.

“In London, for example, you can own a £5 million property and be taxed on everything from rental income to capital gains,” he said. 

“In a safe haven like Dubai, the same assets can grow untaxed, which means you can reinvest your money and make more on top of it.”

Reuters/Christopher Pike

The UAE’s privacy and regulatory environment is another lure. 

“This will be the last place in the world that privacy gets cracked because it’s cultural,” said Jonathan Beardall, head of wealth and asset management at Dubai International Financial Centre, a leading offshore zone.

“That’s a key reason we’re seen as a safe haven.”

Offshore centres like the British Virgin Islands and Cayman Islands are coming under growing pressure to make their company registries available for public scrutiny.

Meanwhile, the British government and the European Union, jurisdictions previously favoured by the wealthy, have tightened disclosure around beneficial ownership and clamped down on mechanisms used to launder alleged dirty money.

Yann Mrazek, managing partner at M/HQ, adds that the DIFC’s private wealth-friendly policies and private registries for families ensure confidentiality.

“There is a lot [of information] going into [the] public domain. Families do not like that,” he said. 

“We believe that the next commodity is privacy. DIFC’s private registry for families is set up so the data is shared with the registrar, with the regulator, but not available in the public domain.”

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The influx of millionaires is expected to benefit luxury goods markets, private banking, concierge services, and bespoke travel agencies, according to Dakhlallah.

“Banks and financial institutions may introduce new products and services to cater to this affluent demographic,” he said. 

However, he warned of potential challenges, such as increased living costs and inflationary pressures that could impact middle-income residents and the broader economy. 

“Middle-income residents might find it more challenging to afford housing and other essential services as prices increase,” he said. 

“If the economy is performing beyond its potential and the output gap is positive, the increased demand for goods and services could contribute to inflationary pressures.

"This might affect not only luxury items but also everyday goods and services, making them more expensive for the general population," he added.