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Expat Briefing Editorial Team
30 July, 2013
Although European cities dominate the world's top costliest locations for expatriates, it may surprise you to learn that Luanda, the capital of Angola, is the most expensive place on earth in which to live for an expat posted abroad.
This is according to the 2013 Cost of Living Survey by Mercer, a consulting unit of Marsh & McLennan, which is designed to help multinational companies and governments determine compensation allowances for their expatriate employees. The survey covers 214 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. The survey uses New York as the base city, and currency movements are measured against the US dollar.
The survey reveals that the difference in cost for these everyday items can be dramatic. For example the cost of a cup of coffee in Managua, Nicaragua is USD1.54 compared to USD8.29 in Moscow; a fast food hamburger meal is USD3.62 in Kolkata (Calcutta), India, versus USD13.49 in Caracas, Venezuela, and a cinema ticket is USD5.91 in Johannesburg compared to USD20.10 in London.
The cost of expatriate housing is typically the biggest expense for employers, and it plays an important part in determining the rankings. In Luanda, the average rent for a luxury two-bedroom unfurnished apartment is USD6,500 per month. The monthly rent jumps to an eye-watering USD15,000 per month for a similar standard of accommodation with an extra bedroom.
The Russian capital of Moscow follows Luanda as the second most expensive city because of high costs for rental accommodation and imported goods and services commonly purchased by expatriates commanding a premium. A luxury two bedroom unfurnished apartment rental for one month in Moscow is USD4,600 a month or 14 times as much as in Karachi, Pakistan.
Tokyo, Ndjamena (the capital city of Chad), and Singapore round out the top five most expensive cities for expat living. The other cities appearing in Mercer's top 10 costliest cities for expats are Hong Kong, Geneva, Bern and Zurich.
Currency fluctuations and the impact of inflation on goods and services have had a particularly strong impact on the cost of expatriate programs as well as the city rankings.
"Recent world events, including economic and political upheavals, which resulted in currency fluctuations, cost inflation for goods and services, and volatility in accommodation prices have impacted these cities making them expensive,” said Barb Marder, Senior Partner and Mercer's Global Mobility Practice Leader. "Despite being one of Africa's major oil producers, Angola is a relatively poor country yet expensive for expatriates since imported goods can be costly. In addition, finding secure living accommodations that meet the standards of expatriates can be challenging and quite costly."
Nathalie Constantin-Métral, Principal at Mercer with responsibility for compiling the survey ranking, added: "Overall, the cost of living in cities across parts of Europe has gone up in the ranking as a result of the slight strengthening of local currencies against the US dollar, whereas in Asia about half of the cities went down in the ranking – Japan especially – due to local currencies' weakening against the US dollar.”
In the Americas, cities in South America are the most expensive for expatriates. Living in some cities, particularly those in Brazil, became cheaper because the US dollar strengthened against local currencies. Other cities became more expensive. The cost of living in some, like Buenos Aires and Caracas, rose due to high inflation. Others, like Mexico City, are facing a strong rental market.
Overall, the cost of living in other cities in Latin America and in the Caribbean remained fairly stable, according to Mercer's rankings.
New York, the base city for Mercer's Cost of Living rankings, is the most expensive city in the United States. It became costlier due to rising housing rental costs. Most other US cities have moved little since year's ranking, while Canadian cities generally moved slightly down in the rankings this year.
"Overall, US cities either remained stable in the ranking or have slightly decreased due to the movement of the US dollar against the majority of currencies worldwide,” explained Constantin-Métral. ”Yet several cities, including New York, moved up in the ranking due to a rise in the rental accommodation market.”
Canadian cities are seen as slightly cheaper places to live this year as a result of a slight decrease of the Canadian dollar against the US dollar, and because the prices of goods and services increased at a slower pace than in New York.
While many Asian cities remained stable in the previous 12 months, a large number have gone down in the rankings due to weaker local currencies (against the US dollar), including the most expensive city in the 2012 rankings, Tokyo, which is ranked third this year.
Singapore is ranked 5th globally, and high demand for expat accommodation and goods, coupled with a strong currency, make the city relatively expensive.
Sydney is also in the top 10 worldwide and the most expensive expatriate destination in the Pacific. This is largely because demand for rentals in Sydney is outstripping supply. Other Australian cities are also relatively costly due to the strong Australian dollar. Mercer’s survey shows that neighbouring New Zealand is more affordable for expatriates.
Europe, Middle East and Africa
European and African cities dominate the most expensive expatriate destinations. As already noted, Luanda, Angola, is the top-ranked city. But another African city is a surprising presence in the top ten: N'Djamena, the capital of Chad, is ranked 4th. Expatriates living in these cities have high expenditures for appropriate accommodation, transportation and imported goods. Other African cities remain more affordable, however.
Moscow is second in the global rankings, also because of its high-demand rental market and expensive goods commonly purchased by expatriates. Three Swiss cities – Geneva, Zurich, and Bern – are also in the Top 10. Switzerland remains one of the costliest locations for expatriates despite decreasing or stable accommodation costs and a robust Swiss franc.
Overall, the cost of living in cities across parts of Europe has gone up mildly as a result of the slight strengthening of local currencies against the US dollar.
Cost of living comparisons 2013 – the top 10 costliest cities for expats (figures in US dollars):
Rent of a luxury two-bedroom unfurnished apartment (per month)
Rent of a luxury three-bedroom unfurnished house (per month)
Cinema, international release, 1 seat
Pair of blue jeans
1 issue of international daily newspaper
1 cup of coffee, including service
Fast food hamburger meal
1 litre of gasoline, unleaded 95 octane
Pasteurized whole milk, above 2.5% fat (1lt )
1 litre of soda
Source: Mercer's 2013 Cost of Living Survey
Other surveys which aim to measure the cost of living for expats posted to overseas assignments have come to broadly similar conclusions recently. While African cities don’t tend to figure so prominently in these, Asian and European cities do, and there are some familiar names at the top of some of these rankings.
For instance, in September 2012, research by Savills, the international estate agency, suggested that Hong Kong is the most expensive city for a multinational company to establish an office staffed by expat executives.
Savills’s study measured the total real estate cost, both residential and commercial, associated with accommodating a core business unit of seven employees in a number of cities. It found that Hong Kong tops the list, with total accommodation costs for the group of seven employees at almost GBP660,000 (USD1m) per annum in Hong Kong’s financial services heartland on Hong Kong Island.
London is second most expensive, although it is 17% cheaper to establish the same seven-person team in the British capital than in Hong Kong.
New York is ranked 3rd most expensive, despite being just 7th on the basis of residential costs alone. This reflects some of the highest financial district rents in one of the world’s most established financial districts.
Shanghai, which ranks 4th for headline office rents and 6th for residential costs, appears a relatively cheap place to do business on this measure according to Savills, second only to Mumbai, but residential accommodation accounts for almost half of this total.
Paris, with a total bill of GBP422,900, might appeal to companies looking for a European base but who are not tied to London, Savills says.
The analysis looks at two types of locations – a prime city centre financial sector and a less central location that might be favoured by a creative or social media business. For creative businesses the costs of business space is relatively less significant than for financial services businesses. Employers in this sector may also consider the quality and standard of living available to their employees as a critical factor in attracting and retaining talent, making the cost of good residential environments an even more important consideration for companies. Annual totals in this sector range from GBP452,400 for Hong Kong to just GBP135,300 for Mumbai.
“The cost of accommodating personnel is a vital consideration for any business and residential costs will inevitably be reflected in the salary bill,” says Yolande Barnes, director of Savills Global Research. “Our analysis suggests that the costs of office accommodation should not feature as a high priority in the process of selecting one world city over another. Rather, it is the cost and quality of residential accommodation and, most importantly, the quality of human capital that these cities attract that determine their appeal to businesses and determine future residential capital and rental value growth.”
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