Inflation to soar in UAE following the rent cap removal this year
With the removal of the rent cap, housing costs will contribute to inflation, this year. In the UAE, headline inflation rate for 2013 was at 1.1 per cent.
“With the rent cap removed, we can expect the housing category to contribute more to inflation,” said a NBAD research note. “Inflation is expected to gradually creep up.” Out of 12 categories the main drivers of the inflationary trend are an increase in housing and food, it said. The housing category is now contributing to strong price pressure in Dubai, it said. The upward trend is expected to continue especially in Dubai.
The rents continue to increase for all the areas in Dubai. While affordable areas saw an increase of more than 40 per cent year-on-year, high-end neighborhoods also had significant increases. Rental values also went up in the capital. Against an annual Inflation rate of 1.75 per cent year-on-year in February, the prices in the UAE are expected to increase to 2.4 per cent on average this year. In 2013, inflation was estimated at 1.1 per cent.
Global price pressures are currently absent as reflected by the softening in commodity prices. The UAE remained a net capital exporter against a background of record high oil prices and rise in hydrocarbon output. The Abu Dhabi government Credit Default Swap (CDS) spread dropped to 53 basis points at the end of February while Dubai saw it falling to 188.5 basis points. The fall in CDS indicates easing of debt concerns and improvement in sentiments, the research note said.
Dubai’s CDS saw the spike of 700 in late 2008/early 2009, when global financial crisis hit many economies raising questions of credit worthiness. The UAE remained a net exporter of capital against a background of record high oil prices. The country was estimated to rake-up $99.1 billion in oil revenues, in 2013, with 2.87 million barrel per day output. In 2012, output was 2.64 million barrel per day.
Outflows attributed to public enterprises were $31.3 billion, up from $30.5 billion in 2011, these presumably included foreign investments of SWFs. Inward foreign direct investment was estimated at $9.6 billion against $7.7 billion in 2011, noted a NBAD research note quoting financial data.
Foreign bank loans were $111 billion in September 2013, up nine per cent year-on-year. Outstanding bonds were estimated at $125.5 billion in the same month, up 15.6 per cent year-on-year. Corporate issuance has been a growing feature to $53 billion, 12.32 per cent higher, in the UAE.