Exploiting Arbitrage

Abu Dhabi, the capital of the United Arab Emirates, has recently announced that all of its government institutions as well as companies will be paying employees the housing allowance based on evidence that shows residency in Abu Dhabi itself. This can be in the form of a permanent one or a temporary one such as the rental of a house or an apartment. The logic, as it seems to many, is  to  revive the old, in the city, as well as the newly established real estate market, out of the city. And since real estate development is part of Abu Dhabi’s 2030 vision, it’s only reasonable not only to want people who work in Abu Dhabi to live and spend in it, but to also attract people from perhaps the gulf region and later the  world. After all, isn’t this why cities are built and are promoted? However, this new law seems to have been considered for quite some time as speed limits on roads into and out of the capital have been reduced to, as clearly indicated, reduce road accidents. Do note here that this is also the main reason behind passing the new housing allowance law.

People, citizens and residents, have been hunting for jobs in the capital because of the relatively higher salaries paid as the standard living there is also higher. To be more specific, the higher standard of living is mainly in rents and in the costs of constructing a house. Therefore, people would live somewhere between Dubai and Abu Dhabi where the travel distance is acceptable hour, or they would travel all the way from their respective emirates on daily basis which can take anything from 75 to 120 minutes if you work in Abu Dhabi itself and more if you were heading somewhere close to the border with Saudi Arabia. So because of this difference in rentals, which can be an example of arbitrage, people actually save money by not living in an already below-demand supply market of housing units in the capital which caused these to be leased out at significantly higher prices than in its neighbor Dubai. As a result, the real estate market, rental basically, was blooming like a spring daisy if it wasn’t for the financial crisis that slowed things down.

Things started to pick up now in the real estate market but not as fast as building and skyscrapers are being built and housing units are being provided in the capital. Therefore, the housing allowance law, and any laws that preceded it as well as any that will follow, are essential in bringing the housing allowance law itself into action, though with partial efficiency and effectiveness. Similar to any law, people have already found loopholes to avoid living in Abu Dhabi, again to save some cash while of course still receiving their entitled housing allowance which is a major chunk of the monthly salary. Many have asked their relatives, who already live in Abu Dhabi, to create fake lease contracts of perhaps additional houses that they own or of extensions built on lands of primary houses. Others would cut deals with landlords to pay some sort of an annual fee, or commission if you may call it, to issue also phony contracts that would still allow them to save money after paying the rent of their original lease contract of apartments or houses in Dubai.

Exploiting arbitrage has been always a way of making money, or here to save money that is indirectly making money, somewhat. The difference here is that people are not travelling between countries to exploit price difference for profits, but are coming up with ways of cheating the system to keep receiving their entitled housing allowance. The dilemma here, which can also be the solution, is to realize whether or not there are enough housing units for all of those who work in Abu Dhabi but live elsewhere. An increased supply will normally drop rent prices to levels that would make the summed up expense of rent paid in Dubai, fuel expense, as well as commission on phony lease contracts in the capital expensive. That would encourage people to fully migrate to Abu Dhabi, resulting in almost full effectiveness of passing the new law as housing units will be occupied and residents will also spend money in Abu Dhabi. Otherwise, they might as well work in Dubai if salary difference, after deducting housing allowance, become quite negligible.