Dubai's inflation rate cut by lower rents

Dubai inflation continued to cool last month compared with last year, driven lower by cheaper rents and utility bills.

Lower oil prices have also made petrol cheaper for residents of the UAE.

The Dubai Statistics Centre said the consumer price index increased 1.51 per cent year-on-year compared to 1.43 per cent in February.

Inflation in the country was running at about 4 per cent for much of last year.

Housing and utility costs, which make up 43.7 per cent of consumer expenses, rose by 4 per cent year-on-year last month and was unchanged from February, the agency said.

The cost of food and beverages, which make up 11 per cent of the price index basket, increased by 3.5 per cent from March last year while gaining 1.21 per cent from the previous month.

Economists say that the trend of slower price growth is likely to continue during the second quarter amid expectations that rents and utilities, the biggest components of the inflation basket, will remain subdued.

“In our opinion, during the second quarter of 2016, the inflation rate will be in a declining trend because the housing and utilities are expected to decline,” said Alp Eke, the senior economist at the National Bank of Abu Dhabi.

Dubai and Abu Dhabi were the most expensive cities in the Middle East for expatriates last year, according to the 2015 survey by the cost of living expert Mercer. Abu Dhabi and Dubai are the 33rd- and 23rd-most expensive cities in the world, respectively, in large part because of a steep rise in rents for expatriates.

Abu Dhabi had moved up 35 places from 2014’s survey by Mercer. The cost of living in Dubai also rose sharply. It was 67th in 2014.

Much of that cost has been related to the cost of renting, which had shot up in 2012 and 2013 as the UAE recovered from the financial crisis of 2009. However, since the crash in the price of oil starting from mid-2014, rents and home valuations have been cooling.

Richard Paul, a director of residential valuations for the estate agent Cluttons, said this month that prices were continuing to soften, with anecdotal evidence of job losses in the banking and oil and gas markets weakening sentiment. He expects capital values to drop by a further 5 per cent this year.

Meanwhile, property developers in Dubai will complete another 460,000 square metres of office towers this year, putting more pressure on rents and potentially giving relief to businesses affected by tougher economic conditions, according to Core, the Dubai affiliate of the property brokerage Savills.

The glut of new stock equates to 7 per cent of the city’s total 6.6 million square metres of primary and secondary office stock, Core said earlier this month.

Rents in Business Bay and Sheikh Zayed Road fell by an average of 4 per cent last year to Dh105 per square foot and Dh130 per sq ft, respectively, as new supply comes on to the market at a time when the economic slowdown has forced landlords to cut rates.

However, overall, Core found that rents recorded an average increase of 1.5 per cent across the city as landlords in some prime areas continued to cash in on their locations.

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