The blame game

Inflation is rampant but when it comes to property, why are UAE nationals somehow expected to behave differently from the rest of the world?

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By  Stephen Corley Published  December 11, 2005

|~||~||~|In a country well used to superlatives and where new peaks are scaled almost daily, Dubai seems set to enter the record books again, this time on the issue of housing costs. Unhappily, in this case, the title in question would seem to be related to the rapacity of its residents. It stands accused — or rather its elders and businessmen do — of stepping beyond the guidelines of human decency. All that is perverse and greedy and unacceptable in the world of property development is allegedly well represented here. Although why the more perceptive residents of the city have to live through the daily torrent of newsprint devoted to the issue is beyond my explanation. After all, we hardly live in a socialist utopia. In fact, quite the opposite. The UAE arguably represents the very pinnacle of profligacy in an increasingly materialistic world and as a result could hardly exempt itself from the normal rules of supply and demand that exist in any economic environment, particularly one so devoted to the capitalist ideal. So why the uproar over recent months on the subject of housing costs? The region is undergoing a boom of virtually biblical proportions. Labour mobility is high and gravitating increasingly to the UAE where consumer demand is expanding in textbook style and inflation is strong. Without clear federal monetary policy how would it be possible under such conditions to maintain stable prices, particularly in a supply squeezed area such as property? Instead of the universal gripes thrust upon us daily in the tabloid media, I for one would offer a prize to the first supplier of a cogent explanation, which relies on an argument other than the humanitarian or moral one, as to why rents and property prices should remain low. Amongst the recent barrage of complaint, the word immoral gets used time and again. The trouble is, capitalism looks to be pretty immoral if you subscribe to a Christian socialist ideal. Unfortunately for those so concerned about rising housing costs, we do not live in a society whereby such beliefs are practised. Although inflation is bringing us true democracy in that for the first time, luxuries and necessities are selling at the same price! This economic framework, strangely still hugely attractive to increasing numbers of multinational groups and their workforces, is dominated by consumerism and as a classic emerging market with huge inflows of foreign direct investment, is massively prone to asset price inflation. Asking a landlord here to ignore the economic realities of life and embrace some Robin Hood like ideal and allow his properties to rent at below market levels would be as realistic as asking the banks for charity. So we ask landlords to look to their conscience, plead with investors to show some humanity, and scream at government to intervene and fix rent levels. All because the Arab world is greedy? What nonsense. Can anyone imagine a lobby to the Grosvenor Estate or the Cadogan family in London demanding rent reductions in Harley Street or Belgravia? Do the residents of central Paris, New York or Tokyo write to the press or sit around suburban dining tables ranting about the iniquitous behaviour of the property owners? Hardly. In normal society, when products or assets become too expensive, demand falls unless there is a supply squeeze, such as in land or property. When that happens and prices continue to rise, people move out. This is not without its casualties. In London, for example, there are significant problems as the lack of affordable housing for essential workers creates problems with council services such as waste collection. That may well happen here in due course but it is our old friends demand and supply that determine prices, not the relative greed or otherwise of a landlord. The recent intervention of the state in setting a ceiling on rent rises seems bizarre in a city devoted to free wheeling capitalism and will probably only serve to encourage some of the less commercially aware to up their asking prices. But as long as profits are still buoyant and people still pay, there seems little merit in pointing the finger at the landlords. Why Dubai should remain exempt is beyond me. Perhaps it’s just been too easy for too long. Stephen Corley is a business consultant with experience in fund and asset management. ||**||

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