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 Posté le: Dim Sep 22, 2013 1:38 am Sujet du message: Financial crisis in the living room |
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{Financial crisis in the living room }
With salaries not increasing in tandem with housing costs,[url=http://www.michael-korshandbags-outlet.net]Michael Kors Handbags Outlet[/url], what does this mean for residents?Dubai’s residential real estate recovery has been in the news for a while now. House prices have soared and with it the costs of renting properties as well. This surge in housing costs, expected to continue for the rest of the year, has also inflated utility costs that are flaring up in the emirate. Data from the Dubai Statistics Centre revealed that the emirate’s inflation was up by 0.66 per cent in the first half of 2013 compared with the same period in 2012. While the inflation rate of food and non-alcoholic beverages increased by 2.22 per cent, the hike in the hospitality sector — restaurants and hotels — reached 1.18 per cent. An increase was also reported in the education sector with pre-primary and primary education fees going up by 5.09 per cent and secondary education fees by 4.27 per cent. Similarly, the cost of buying household equipment and carrying out routine household maintenance also increased by 3.69 per cent.With salaries not increasing in tandem with raging housing costs that account for over 40 per cent of consumer expenses in Dubai,[url=http://www.michael-korshandbags-outlet.net]Michael Kors Handbags[/url], what does this mean for residents? What impact will this surge have on consumer borrowing, lending and debt repayments? During the first five months of the year,[url=http://www.michael-korshandbags-outlet.net]michael kors canada[/url], consumers took out loans worth over Dh9 billion, a figure that already matches the increase for the whole of 2012. Furthermore, the UAE today represents over 60 per cent of consumer debt in the GCC and a consumer debt-to-income ratio that is higher than most European countries and the United States — both very unsettling signs of mounting household debt in the country.Additionally,[url=http://www.michael-korshandbags-outlet.net]Michael Kors Outlet[/url], most residents are having trouble making personal loan or mortgage payments and are using credit cards to do so. Using debt to pay off debt slowly but surely becomes a crippling burden as annual interest rates on credit cards are around seven times higher than those on personal loans. Moreover, a personal loan is unsecured, which means that whatever you buy with it cannot be used as collateral to recover the costs of the debt, unlike a mortgage or a car loan. As the lender then solely relies on the borrower’s promise to pay back the loan, there is increased risk and hence a higher interest rate.According to estimates by the UAE Central Bank, personal borrowing grew by 17.4 per cent from 2011 to 2012, with personal loans to residents increasing by Dh3.8 billion in June this year. The Dubai Economic Council’s 2013 first-quarter report revealed that in terms of the distribution of loans granted by the banks of Dubai during the first quarter of 2013, personal loans accounted for the largest proportion at 29.9 per cent. In 2011, the UAE Central Bank called for stringent criteria for personal lending. Banks were permitted to approve loans of up to 20 times an individual’s monthly income — with installments not exceeding 50 per cent of the debtor’s monthly salary — in order to avoid a replay of the 2008 cycle. In April 2013, the deposit-to-loans ratio was revised to ensure that UAE banks held more deposits than outstanding loans. While it’s probably impossible to live debt-free, letting it get out of hand is something that can be controlled. The challenge is learning how to judge which debt makes sense and which does not and wisely managing the money you do borrow.Good debt includes anything you need — such as a property mortgage — but cannot afford to pay for up front, while bad debt includes money you have borrowed for things you do not need and cannot afford (that family holiday to New Guinea, for example). So, while the increase in the rate of lending for property mortgages is a welcome sign, personal borrowing is not.At this point, I am reminded of Calvin Coolidge who rightfully said that there is no dignity quite so impressive and no independence quite so important as living within your means. So, do not get trapped in a vicious net of frenzied borrowing and credit-fuelled spending sprees. Get a hold over your money so that the lack of it does not control you.The writer is the managing director of propertyfinder.ae. Views expressed by the author are his own and do not reflect the newspaper’s policy. var google_adnum = 2; function google_ad_request_done(google_ads) {var s = '';var i;if (google_ads.length == 0) { return; }s+='
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