Dubai dropped 26 places to be ranked 81 globally in the list of most expensive cities for expatriates, making the emirate potentially more attractive places for foreigners to live, according to a survey released on Tuesday.
Price increases for the Mercer basket of goods and services remained moderate in Dubai during the period March 2010 to March 2011.
The trend of falling accommodation costs continues across the Middle East region, driving the cities down the global cost of living ranking and, particularly in the case of politically stable markets such as the UAE.
Callum Burns-Green, chief of Mercer's Dubai office, said: "Dubai in particular has witnessed a reduction in accommodation costs since 2009 as the strong supply of property coming on to the rental market has reduced the shortage that existed in the several years prior to 2008. The government has also announced plans to control inflation in other key areas such as the cost of food."
The Dubai residential rental market is experiencing further rent decline. Weakening demand and huge supply are driving the market downturn. Many tenants have been moving from larger units to smaller ones, due to a reduction in household incomes and adoption of a more cautious approach towards household expenditure, Mercer said.
"During the period of data-collection for this year's survey the world has witnessed an incredible number of natural disasters and political upheavals that have all affected the lives of expatriate employees to some extent. The resulting currency fluctuations and the impact of inflation on goods and services - petrol in particular - have impacted the changes to the cost of living ranking of many cities. Overall, cities in the Middle East have moved down the table reflecting a reduction in cost relative to other regions.
Where the depreciation has been accompanied by political stability and good levels of security, such as in the UAE, all other things being equal, we would generally expect a favourable impact on those cities from an economic perspective as expatriates and their employers see a reduced cost of living and doing business there," Callum added.
Mercer's 2011 Cost of Living Survey showed that Abu Dubai is ranked the most expensive city in UAE and Middle East at a ranking of 67.
Other cities across the GCC were ranked as follows: Riyadh (135), Manama (157), Kuwait City (159), Doha (164), Muscat (184) and Jeddah (185).
The survey covers 214 cities across five continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is the world's most comprehensive cost of living survey and is designed to help multinational companies and governments determine compensation allowances for their expatriate employees. New York is used as the base city and all cities are compared against New York. Currency movements are measured against the US dollar. The cost of housing - often the biggest expense for expats - plays an important part in determining where cities are ranked.
Luanda in Angola is the world's most expensive city for expatriates for the second year running, largely due to the high costs associated with security and safe accommodation. Tokyo remains in second position and Ndjamena in Chad in third place. Moscow follows in fourth position with Geneva in fifth and Osaka in sixth. Zurich jumps one position to rank seventh, while Hong Kong drops down to ninth.
New entries in the top 10 list of the costliest cities in the world are Singapore (8), up from 11, and Sao Paolo (10), which has jumped 11 places since the 2010 ranking. Karachi (214) is ranked as the world's least expensive city, and the survey found that Luanda, in top place, is more than three times as costly as Karachi.
Luanda world's most expensive city