Global banks eye Dubai to cut costs and motivate staff
Posted on 11 February 2009 with no comments from readersOrder my book online from this link
Tax-free, a high standard of living, low-cost accommodation and access to the savers of the Middle East, Dubai continues to hold the future of global banking in its hands.
But it could be a few years before this vision of the future becomes a real business model as global banks are reeling from the impact of the global financial crisis.
Move to Dubai
On the other hand, the crisis should accelerate the move to Dubai. Global banks need to cut their operating costs, and setting up in Dubai is far cheaper than in London, New York, Singapore or Hong Kong.
A study published yesterday placed Dubai 15th on a list of the world’s most expensive property markets. An average apartment costs one-third of London prices in Dubai, and the data was compiled before the recent Dubai property crash.
Indeed, the Dubai real estate collapse will make both commercial and residential property far cheaper for incoming financial institutions and their staff, and there will be a lot of choice amid many new high quality buildings, especially as boom-time projects are completed over the next couple of years.
Banks and financial institutions will also have to consider how to motivate staff in an era of low bonus payments. Offering tax-free salaries in a tax haven is an alternative.
Financial professionals in London can pay half their income in tax, and when that money is invested they pay tax again on any capital gain and earnings. Moving to a tax haven makes sense for the money business.
Legal system
Dubai has also spent the last five years or so developing a special legal system for its financial free zone, the Dubai International Financial Centre, which operates in English under the watchful eyes of former English judges.
The physical infrastructure of the DIFC is also now impressive, with its skyscrapers and low-rise offices a familiar working environment for exiles from The City, Canary Wharf, New York or Singapore. It is both comfortable and practical as a base for the financial sector.
Perhaps a move to Dubai will be the last thing on the minds of senior bankers these days, and it might be difficult to achieve for banks that have been effectively nationalized and therefore have to stay in their uncompetitive home bases.
But money always flows to the lowest cost, most efficient location, and that will be Dubai for the financial world. And the Dubai property crash just increases this cost advantage.
no Comments posted by readers:
What about Bahrain? Far cheaper and perhaps equally welcoming now.. !
Looks like foreigners are now fleeing Dubai. Can you comment on this Mr. Cooper??
http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?em
I thought the New York Times a better paper than this. The story about 3,000 abandoned cars has been squashed as nonsense by the chief of police, and the 1,500 leaving per day is more than balanced by arrivals (which are not mentioned!) and their local reporter ought to know this.
But it is undoubtedly true that Dubai is now dealing with a local cyclical downturn compounded by the global financial crash. The point of this article is that lower costs will now increase the strengths of the Dubai economy for the global banks, not diminish it.
In all business competitions the lowest cost location – provided it can deliver the goods – wins. Would you like to offer a historical example where this has not been the case?
You say that costs in Dubai are lower. Can you show me how you find costs to be lower? An important point that needs to be considered in the examples you mentioned like New York, Hong-Kong and London is that the above are major cities which are surround by other cities and have huge populations. I travel very often and as much as I like Dubai I just can’t possible see Dubai being compared to Hong-Kong, Tokyo, New York or London. The local markets are very small and limited compared to those of other countries and their expenses are not low by any means in Dubai. Rent, living expenses, visa fees, residency fees and other expenses are up there for foreign companies doing business in Dubai. Dubai’s growth depends very much on expats and foreigners in the UAE. Without the expats and foreigners these growth numbers would completely vanish.
In order for Dubai to continue it’s growth like it did in the past current fees,regulations and expenses that non-locals have to pay need to be reviewed and revised immediately or Dubai will be in deeper trouble than it currently is in.
As you stated the article did not mention how many were arriving which they should have mentioned.
I was referring to a recent survey which found the cost of a two-bed apartment in Dubai to be one-third of London prices – I suppose they are comparing the very top of London real estate with the best that Dubai can offer and it would be very different if you compared non-Central London with Dubai. I once used to live in Pimlico in London and was astounded to see a two-bed selling for $2.6m not so long back – but admittedly all these top-end prices are undergoing huge falls now.
You are right though, in order to be competitive Dubai prices have to come down across the board, and this is happening right now!
I don’t know how you figure Dubai is cheap. As a banker who’s worked in the DIFC and Emirates Towers, I can tell you first-hand that, apart from the tax benefit, there isn’t a thing in Dubai that’s cheaper than the same in NYC or London anymore. Rents in the DIFC are actually higher than rents in the City at the moment. And I find the police’s ‘11 cars’ figure just as ridiculous as the 3,000-car one.
Why would bankers relocate to someplace with pitifully low investment banking fees, smaller transactions, mediocre talent and equivalent costs? Maybe in the past, when there was some business and mediocre London bankers flocked to Dubai, but most of them have been let go by now.
Cars? Tailored suits? Accommodation prices are falling fast. Once oil prices boom again Dubai will be the place to be a tax-free financial professional. Meanwhile, if you prefer to stay in London or NYC good luck, and you are going to need it.
In response to Taylors comments I do know that Bank transfers T/T are about 4 times more in the UAE at the Banks than they are in Taiwan also I can leave my money in my Savings account for 1 or 2 years without the bank closing my account for in activity. I opened a Savings account with National Bank of Dubai and when I arrive dback into Dubai I was told my account was closed. I asked why and they told me that accounts which were not used in 6 months were closed but could be reactivated for 300 Dhms. ( I may not be right on that figure but I know it was somewhere around there). I thought that was crazy. I have an account in the US, Taiwan, Thailand, Hong-Kong and in neither of those places do they close your account and require you to pay a ridiculous fee to reactivate it. I can understand if it were a checking account to where you didn’t have enough funds in it to cover a check or something but a Savings account??
To remain competitive Dubai’s Banks need to be competitive and their fees need to be reasonable. It should not cost 4 times more to send a money wire in Dubai than other places and Savings Accounts should not be closed after 6 months of inactivity (and require a crazy fee to reactivate). I know in Islam that this is not Halal gouge customers in fees.
As Peter said though, when the oil boom resumes Dubai will flourish again.
Direct Comparison:
At 5.2 Dirhams to Pound Sterling gets you -
A 2 bedroom + Study in Dubai for 130,000 Dirhams/year (1500sq feet)
OR IN AN EQUIVALENT AREA OF NORTH LONDON
A 5 bedroom house in a well to do area ie 25000 Pounds/year (2300 sq feet)
Really I used to let my 1,200 sq ft house in Docklands for 19,000 pounds 12 years ago – have prices dropped since then? But I can see the currency change does now make a difference.
Surely the comparison is a one-bed in Chelsea at around 24,000 pounds with a a one-bed in Dubai – of course London rental yields are very low and that might make buying in Dubai a better long term prospect.
A one bed in Chelsea for 24,000 quid will be a hell of a lot nicer than a one-bed in Dubai’s newer developments. Chelsea is top end London! The closest Dubai equivalent might be the Old Town. Much as I like the Old Town, Chelsea it is not, even if the prices are similar.
Whilst there might be several things that tempt people over still, value for money accommodation isn’t one of them.
I used to live and work in London, I saw Dubai as the place to be in 2008 so I came. i found out that this city is so over rated. Even the tax free system is over rated. Things you get for free in the UK you pay for here. simple example 24/7 Salik. I live in whats supposed to be a prime Location in Dubai. It’s no match to a Zone 2 Flat in London for the same price. there is no culture, you can’t walk, you don’t have choices, banks are extremely slow in processing anything, and it’s expensive.
For me after comparing what I earn here and spend with respect to the UK. I think it’s the same, its only the decision of where do i want to live. well I’m going back to London. I say if Dubai was meant to be a city it should have been 1000s of years ago, just for argument, how can a city that wants to rise as one of the worlds greatest financial and real estate hubs not have drainage system; No integrity. Dubai is quantity not quality, and now a days its simply nothing. Lets not forget transparency in media, its a joke really.
A good place to open a business in the Middle East is Beirut, it has a sophisticated culture, great weather, man and brain power that matches the greatest cities in the world.