Source : The National

Abu Dhabi - Jun 24:Expatriates are bearing the brunt of higher rental costs in the capital as housing expenses eat up a much larger proportion of their incomes than those of Emiratis, government data shows.

Expatriates spent 41 per cent of their income on rent and utilities while Emiratis spent about 28 per cent, according to a household  expenditure survey released yesterday by the Abu Dhabi Department of Planning and Economy.

The survey also showed that income earned by Emiratis  accounted for 51 per cent of Abu Dhabi’s total earnings of Dh53.4 billion (US$14.5bn), even though Emiratis made up only 22 per cent of the emirate’s workforce.

The shrinking disposable income of expatriates suggests their savings and remittances to home countries must also be decreasing, since the data shows they spend proportions similar to Emiratis on most other expenditure categories.

Food, beverages and tobacco account for about 14 per cent of the expenses for Emiratis and expatriates, while transportation accounts for 20 per cent and health care two per cent.

However, nationals spend more on home furnishings, about nine per cent of their salaries, while foreigners spend just three per cent.

The recent arrival of large numbers of expatriates fuelled the housing shortage and ensuing rental increases of nearly 20 per cent last year, and rents were expected to rise again this year.

Most nationals, however, locked their rents prior to the housing crisis. The Abu Dhabi Government has capped the rate of rent increase for lease renewals to seven per cent.

“Higher rents has meant that a higher percentage of the local income is staying in the economy,” said Giyas Gokkent, the head of economic research at National Bank of Abu Dhabi. 

However, increased money supply in the economy, lower savings and higher spending also fuel inflation.

The UAE and Abu Dhabi had inflation of about 11 per cent last year, the highest rate in more than two decades, with rent accounting for almost 60 per cent. The Department of Planning and Economy (DPE) estimated this month that inflation had grown to near 12 per cent so far this year.

Most analysts predict that by the middle or towards the end of 2009 the completion of construction projects and increase in the availability of adequate housing in the market will ease pressures and slow the rate of inflationary growth.

Inflation measures the rise in prices of different baskets of goods and services, each given a different weight depending on its proportion of average consumers’ income. The UAE model, adopted in 1997, gives rent and utilities a weight of about 36 per cent.

The Ministry of Economy said last week that it would work with the International Monetary Fund to develop a new model that better reflected current consumer spending patterns. The DPE said yesterday that it would use the new model to calculate inflation in the fourth quarter.