By Sneha Koshy
The city of Dubai, UAE has been in a constant state of flux over the past thirty some years, rapidly transforming into the expat and tourist haven it is today. Why is the world paying more attention to Dubai? This can be attributed to many factors: geographic location, a “tax-free” environment, enterprising leadership, the leveraging of oil revenues into improving infrastructure, and subsequent attractiveness for foreign investment. Seemingly never-ending expanses of sand were thus replaced by an indoor ski slope, the world’s tallest building, and the world’s largest mall, to name a few.
While the UAE is an Islamic country that observes Shar’iah law, Dubai in particular is considerably more liberal than its counterparts. The government exhibits its tolerant attitude by allowing the practice of religions other than Islam (although proselytizing is prohibited), consumption of alcohol given the proper licensing, and bilingual communication, be it through newspapers or road signage. This being said, an expat may experience significant culture shock due to societal norms such as the observance of Ramadan which necessitates non-practicing Muslims except children, pregnant women, and the elderly to refrain from eating or drinking in public during daylight hours; other notable societal norms include dressing modestly in public and the prohibition of unmarried couples cohabiting. While these norms are but a few of the cultural differences that an expat would need to adjust to, the multiethnic community in Dubai increases the likelihood to find others with a similar, if not the same, cultural background. In addition, Dubai has evolved into a city that boasts many advantages that incite expats to give it a chance regardless of the inevitable culture shock.
A significant advantage on Dubai’s side is its geographic location. Situated in the Middle East, the UAE is a crucial transit point on the oil route and a mid-point between Europe, South Asia, and Africa. Stopping over en-route business trips or vacations has been made worth travelers’ while, with a thriving tourism sector that entices visitors to stay longer than a few hours. It is interesting to note that immigrants make up nearly 85 percent of the UAE’s population, with approximately 50 percent of its expatriate population hailing from South Asia. A significant contributing factor to this shocking statistic is the UAE’s proximity to South Asia, allowing for relatively cheap and quick travel back home for many immigrants, who often leave family and children behind in hopes of making “tax-free” income quickly.
Dubai: The tax-free haven of the world
The “tax-free” element is a big lure for immigrants and FDI, since the UAE does not impose an income tax on companies or permanent residents. As aforementioned, it allows for more money to be earned, and in the case of certain developing countries, increased purchasing power. Expatriates from developed countries like the UK or US are often offered very generous salary packages that include expenses such as school tuition, health insurance, vacation costs, home rental and other such perks. The aim of these “all-inclusive” salaries is to entice people to relocate to somewhat uncharted territory. Judging by the ratio of expats to citizens, this has been overwhelmingly effective. This serves as a band-aid solution while the UAE educates its citizens both abroad and at local universities.
An attractive salary package alone would not have sustained the influx of expats, but paired with Dubai’s improvements in infrastructure, a competitive economy was developed. While it would have been easier for Dubai to live off oil revenues, leaders like HH Sheikh Rashid and his son, HH Sheikh Mohammed saw the necessity of making Dubai competitive in the global marketplace, and thus invested oil revenues into urban development. This increased Dubai’s livability for expats, especially those from developed countries that were used to a certain standard of living. Over time, Dubai’s landscape included the hallmarks of every global metropolis, including numerous skyscrapers, shopping malls, a thriving international airport, metro and tram systems, and most recently, an opera house.
Dubai’s advanced infrastructure and lack of income taxes imposed on companies (excluding banking and oil) makes for an exciting FDI prospect. As a result, Dubai has a wide variety of foreign brands recognizable to its expat population. Residents know it is not uncommon to find global fast fashion brands like Sweden’s H&M or Spain’s Zara all but steps away from luxury brands such as France’s Christian Louboutin or America’s Bloomingdale's. The variety offered to shoppers is unparalleled by many cities in developed countries because of the diversity in consumers Dubai tries to cater to, cultural and otherwise. FDI in Dubai is not limited to retail companies, but extends to other spheres such as financial services, supermarkets, hospitality, and real estate.
Contributing factors to Dubai’s ever-diversifying economy include all the above-mentioned industries, however there are two in particular that have propelled Dubai to its newfound stardom: tourism and real estate. State-owned airline Emirates has succeeded in drawing global attention due to exemplary service and a competitive advantage with superior advertising campaigns and having its hub located in geographically central Dubai. Record-breaking real estate projects Dubai embarked upon has also drawn global media attention and transformed the city into a tourist draw.
Due to the high rate of construction, real estate inevitably became a prevalent part of the market, both commercially and residentially. It is worth noting, however, that foreign residents of the UAE are permitted to buy freehold property only in designated areas, which is still a step up from neighbouring emirates that still enforce long-term leaseholds. Sheikh Mohammed’s decision to permit foreign freehold ownership thus stimulated the real estate market as early as 2002. Companies like Emaar rose to prominence through its commitment to several high-profile projects, and increased construction of residential communities. Frenzied buyers caused the housing market to inflate, until the bubble burst during the Great Recession. Eventually Dubai, much like the rest of the world, slowly resuscitated itself and continued on its path by restarting abandoned real estate projects and going on to win a bid for hosting the Expo 2020. This development implies an increase in jobs, construction, tourists and media attention over the coming four years.
While Dubai’s fast rise to become one of the world’s most cosmopolitan cities, it is debatable whether this rise is sustainable. A significant amount of debt was incurred in the process of developing Dubai’s infrastructure, during which Abu Dhabi (the capital of the UAE) approved billions of dollars in bailout money. However, Dubai shows no signs of being derailed since there are plans to open at least 30 hotels in anticipation for the Expo 2020. It seems unlikely that Dubai would be able to financially sustain embarking on high-profile projects in the long term. Additionally, Dubai is not completely independent of oil revenues, which is worrying due to fluctuating oil prices and depleting oil supply.
The real estate market has served as a safe haven for wealthy foreign investors to house their money, however this has resulted in as much as 20 percent of Dubai’s prime properties remaining unoccupied. The demand for real estate from this demographic has been a primary actor in the housing bubble, driving up property prices and making renting or buying unattainable for residents. This issue is not confined to residential real estate, but is prevalent in the commercial real estate market as well. Dubai’s most notable landmark, the Burj Khalifa, exemplifies the problem with a reported 20 floors’ worth of commercial space (two-thirds of the offices) remaining empty as of 2012 despite being sold during the real estate boom. More recently, the Business Bay development had an occupancy rate as low as 60 percent, the lowest in Dubai’s office markets. Conversely, the diversification of Dubai’s economy has been projected to increase jobs in numerous sectors, which draws expats and increases demand for housing and office space.
Other cities in emerging countries like Shanghai, China have experienced problems with occupancy rates as well. A noteworthy example would be the Thames Town development that was constructed as a part of Shanghai’s 2001 “One City, Nine Towns” initiative to combat imminent overpopulation. However, the nine towns have experienced similar circumstances as Dubai’s real estate market at an aggravated scale. With a small population of students and the majority of real estate sold to wealthy investors living abroad, Thames Town and its eight counterparts have the feel of a ghost town.
Dubai embodies steely determination through its evolution into an expat hotspot. As a result of economic diversification and improvements to infrastructure, this Middle-Eastern city continues to attract tourists and expats alike despite having been a vast expanse of sand a mere 30 years prior. The emirate’s quick rise to fame should also be attributed to low-cost labour and the high volume of relatively inexpensive skill and talent from developing countries such as India, Bangladesh, Sri Lanka, Pakistan, and the Philippines, to name a few. In addition, expats are not as committed to work and contribute on a long-term basis when compared to other global hubs due to citizenship being granted only to locals. Although alike to Singapore in its transformation, Dubai could also stand to shift its reliance on less volatile industries than oil extraction or real estate, to more stable and financially secure sectors as Singapore has by attracting start-up talent and investing in the tech industry which promises high pay-offs in the future. Showing no signs of slowing down, Dubai’s continued progression promises to, in ruler Sheikh Mohammed’s words, “[…] astonish the world, [as] Dubai will bring to life [its] vision: Connecting Minds, Creating the Future.”
