The most - and least - expensive city for expats

Dubai climbed 23 places to be ranked 67th globally in the list of most expensive cities for expatriates, according to a survey released on Thursday.

However, despite the jump, Dubai is still not the most expensive city in the Middle East for expats. That title goes to Beirut (63), followed by Dubai (67), and Abu Dhabi (68).

Jeddah, Saudi Arabia, (175) continues to rank as the least expensive city in the region.

Mercer’s 2014 Cost of Living Survey covers 211 cities across five continents and measures the comparative cost of over 200 items in each location, including housing, transportation, food, clothing, household goods, and entertainment.

Price increases for the Mercer basket of goods and services changed substantially in Dubai during the period March 2013 to March 2014. Last year, Dubai was ranked the 90th most expensive city for expats out of 214 global cities surveyed, while capital Abu Dhabi was ranked 79th, ahead of the UAE’s commercial capital Dubai.

“Several cities in the Middle East experienced a jump in the ranking, as they are being pushed up by other locations’ decline, as well as the strong increase for expatriate rental accommodation costs, particularly in Abu Dhabi and Dubai,” said Nathalie Constantin-Métral, Principal at Mercer with responsibility for compiling the survey ranking.

The previous few years saw Dubai and Abu Dhabi become much more affordable places to live for expats and nationals alike, with a tight lid on inflation, helped by a decline in property prices and rents.

However, as numerous reports have pointed out recently, Dubai in particular has witnessed resurgence in property prices, and rents have been rising in line. Last November’s Expo 2020 win further fuelled investor sentiment and rental values.

Mercer says that the two main factors determining a shift in a city’s ranking are price movements, and the movement of the local currency against the US dollar. “Interestingly, several cities jumped up the list this year following large increases in both accommodation cost and demand, coupled with strong local currencies. Dhaka and Nairobi (both 117) and Dubai (67) soared 37, 30 and 23 spots, respectively,” added Constantin-Métral.

Source: Mercer 2014 Cost of Living Survey

Globally, two African cities top the list of most expensive cities for expatriates due to currency fluctuations and the impact of inflation on goods and services.

Although not typically recognised as wealthy cities compared to others, Luanda in Angola is the world’s most expensive city for the second year in a row followed by N’Djamena, Chad.

European and Asian cities also continue to dominate as the costliest cities with Hong Kong in third place, followed by Singapore. Zurich jumped three places to rank fifth, followed by Geneva in sixth. Tokyo dropped four spots to rank seventh.

Mercer’s survey is one of the world’s most comprehensive, 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 it. Currency movements are measured against the US dollar.

“Rankings in many regions were affected by recent world events, including economic and political upheavals, which resulted in currency fluctuations, cost inflation for goods and services, and volatility in accommodation prices,” said Ed Hannibal, Partner and Global Leader for Mercer’s Mobility practice.

While Luanda and N’Djamena are relatively inexpensive cities, they are quite costly for expatriates since imported goods come at a premium, the survey says.

“In addition, finding secure living accommodations that meet the standards of expatriates can be challenging and quite costly as well. This is generally why some African cities rank high in our survey,” said Hannibal.

Other cities appearing in the top 10 of Mercer’s costliest cities for expatriates are Bern, Moscow, and Shanghai.

Karachi, ranked 211, is the world’s least expensive city for expatriates, and the survey found that Luanda is more than three times as costly as Karachi.

“While multinationals continue to recognise the importance of having a global workforce and corporate assignments remain prevalent, they must be able to monitor and balance the cost of their expatriate programmes. Employers need to evaluate the impact of currency fluctuations, inflation, and political instability when sending employees on overseas assignments while ensuring they retain talented employees by offering competitive compensation packages,” Hannibal added.

Currency fluctuations and the impact of inflation on goods and services have influenced the cost of expatriate programs as well as the city rankings.

The Americas

Cities in the US climbed in the ranking due to the relative stability of the US dollar against other major currencies, in addition to the significant drop of cities in other regions which resulted in US cities being pushed up the list.

A rise in the rental accommodation market pushed New York up eight places to rank 16, the highest-ranked city in the region. Los Angeles (62) climbed ten places from last year while San Francisco (74) jumped eighteen places.

Among other major US cities, Honolulu (97) is up twenty places, Miami (98), is up sixteen places, and Boston (109) is up fourteen spots. Cleveland (167) and Winston Salem, North Carolina (182) remain the least expensive surveyed cities for expatriates.

Hannibal added: “Even though we saw US cities rise in the rankings this year due in part to the strength of the US dollar, it’s important to note that relative costs shift with currency volatility, making overseas assignment costs sometimes greater and sometimes smaller.”

In South America, São Paolo (49) ranked as the costliest city, followed by Rio de Janeiro (65).

Yet, both cities dropped thirty and thirty-six positions, respectively, as a result of the Brazilian real weakening against the US dollar despite increases in rental prices. Buenos Aires also dropped significantly this year to rank 86, following the devaluation of its currency, and despite a strong price increase for goods and services.

Other cities in South America that fell on the list of costliest cities for expatriates were Santiago, Chile, dropping twenty-five places to rank 88 and Bogota, falling thirty-eight places to rank 98. Managua, Nicaragua (207) is the least expensive city in South America.

As explained, the exchange rate has a major impact on a city ranking. This year Mercer left Caracas out of the ranking due to the multiple, complex exchange rate situation; its ranking would have varied greatly depending on the official exchange rate selected.

Canadian cities dropped in this year’s ranking with the country’s highest-ranked city, Vancouver, falling thirty-two places to rank 96. Toronto (101) dropped thirty-three spots, while Montreal (123) fell twenty-eight spots. Calgary’s ranking dropped to rank 125. “The Canadian dollar weakened significantly against the US dollar, which accounts for the major slips we saw in this year’s ranking,” explained Mr. Hannibal.

Europe, the Middle East, and Africa

Four European cities remain in the top 10 list of most expensive cities. Zurich (5) is the most costly European city on the list, followed by Geneva (6) and Bern (8). Switzerland remains one of the most expensive locations for expatriates following the slight strengthening of the Swiss franc against the US dollar. Moscow (9) and St. Petersburg (35) dropped seven and twelve spots, respectively, due to a dramatic depreciation of the ruble against the US dollar.

Overall, Western European cities have all risen in the rankings mainly due to the strengthening of local currencies against the US dollar. In particular, cities in the United Kingdom and Germany experienced some of this year’s biggest surges in the ranking, with Glasgow (108) rising forty-nine places from 2013, while Aberdeen (94) and Birmingham (90) jumped thirty-four and forty-five spots, respectively. Munich (55) rose twenty-six places from last year, Frankfurt (59) jumped twenty-four spots, and Berlin (68) soared thirty-one places from its previous ranking.  Dusseldorf and Hamburg also rose significantly.

Other cities that jumped in the ranking include Paris (27), up ten places from last year, Milan (30), up eleven spots, Rome (31), up thirteen and Vienna (32) up sixteen spots.

Constantin-Métral explained: “Despite moderate price increases in most of the European cities, European currencies for the most part slightly strengthened against the US dollar, which pushed most Western European cities up in the ranking. There have been some increases in accommodation costs, due to strong demand for rentals, which has also been behind upward movement in rankings for some European cities – most notably Copenhagen, Amsterdam, and Frankfurt.”

Most cities in Eastern and Central Europe, however, fell in the ranking as a result of local currencies depreciating against the US dollar. Prague (92), Almaty (111), and Minsk (191) fell nineteen, sixteen, and four spots, respectively, despite there being stable accommodations in these locations.

Beirut (63) continues to be the most expensive city in the Middle East for expatriates, followed by Dubai (67), and Abu Dhabi (68). Jeddah, Saudi Arabia, (175) continues to rank as the least expensive city in the region.

Quite a few African cities continue to rank high in the 2014 survey, reflecting high living costs and prices of goods for expatriate employees. Luanda (1) remains the most expensive city for expatriates across Africa and globally, and Ndjamena follows in second place. Victoria, Seychelles (13) is the next costliest city in Africa followed by Libreville, Gabon (19). In South Africa, Cape Town (205) fell eight places in the ranking, reflecting the weakening the South African rand has suffered against the US dollar.

Asia Pacific

Four of the top 10 cities in this year’s ranking are in Asia. The most expensive city, Hong Kong (3), jumped three places from last year. Singapore (4) is the next most expensive city in the region, gaining one position from last year, followed by Tokyo, which ranked 7 dropping four places this year. Jumping four spots since last year, Shanghai (10) is the next Asian city on the list, followed by Beijing (11), Seoul (14), and Shenzhen (17).

“Japanese cities have dropped in the ranking this year as a result of the yen’s weakening against the US dollar,” said Constantin-Métral. “However, Chinese cities jumped in the ranking, including Shanghai, Beijing, and Shenzhen, due to the strengthening of the Chinese yuan.”

Australian cities have witnessed some of the most dramatic falls in the ranking this year as the local currency has depreciated against the US dollar. Sydney (26), Australia’s most expensive ranked city for expatriates, and Melbourne (33) dropped seventeen places while Perth (37) fell nineteen spots.

Mumbai (140) is India’s most expensive city, followed by New Delhi (157) and Chennai (185). Bangalore (196) and Kolkata (205) are the least expensive Indian cities ranked. Elsewhere in Asia, Bangkok (88) dropped twenty-two places from last year. Kuala Lumpur, Malaysia, ranks 115, followed by Indonesia’s Jakarta which ranked 119, falling forty-eight places from 2013. Hanoi jumped three spots to rank 131. Karachi, Pakistan (211) remains the region’s least expensive city for expatriates.

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