DIFC cost review crucial to the future of Dubai
Posted on 08 April 2010 with no comments from readers
The Dubai International Financial Centre is to conduct a top-to-bottom review of its cost structure over the next few months. This is a normal process following the change of governorship but it comes at a critical time for Dubai.
What Dubai needs to do is cement its position as the regional financial capital as the region emerges from the recession that followed the oil price crash in late 2008 and the global credit crunch. This is absolutely essential if the upcoming office towers of the DIFC and neighboring Business Bay are to be filled, and this massive investment in infrastructure made a success.
Business friendly Dubai
Dubai has three main advantages to global banks seeking ways to reduce their operating costs in the wake of the financial crisis, which may or may not actually prove to be over.
First, the free zone regulatory regime of the DIFC is to global standards and in the English language. Secondly, the zero tax regime for income and capital gains is highly attractive as global bankers find their salaries and bonuses penalized by higher and higher taxes elsewhere.
Thirdly, local housing costs tumbled in the biggest real estate crash in the world in 2009. Therefore staff relocating to Dubai have a higher personal disposable income than before the crisis.
The missing link that the DIFC cost review should address is the rentals for commercial property within its free zone. Yes banks and financial institutions applaud 100 per cent foreign ownership within the zone and the clear regulatory regime, but office rents comparable with London are not really acceptable in the current business climate.
Staffing inflow
If Dubai is serious about getting more multinational financial institutions to set up in this city, and for those here to employ thousands and not single-digit staffs, then the overall cost of doing business has to come down considerably.
Market forces will obviously go someway to achieve this cost reduction. It is going to be interesting to see how many financial institutions that signed up for high cost leases actually back out. But then again it would be more sensible to anticipate this problem and get the landlords around a table.
So the DIFC cost review is far more important that deciding on license charges for 300 or so financial institutions, it will help shape the recovery prospects in Dubai over the next few years.
