Tokyo Rated As Most Expensive City For Expats
Wednesday, June 23, 2010

Tokyo has regained its unwelcome status as the most expensive city in the world for expats, thanks to the continued strength of the Japanese yen, which has appreciated by approximately 30% against the US dollar in the past three years.

The latest Cost of Living data from ECA international, a global outsourcing company, shows how movements in exchange rates can drive up the cost of living for international assignees, a factor that has been especially prevalent in Asia over the past year.

"Three years ago, the weakness of the yen pushed Tokyo out of our global top ten, but as the currency has strengthened, the cost of living for international assignees has risen," observes Lee Quane, Regional Director - Asia, ECA International.

Joining Tokyo in the top ten most expensive cities in the world are the Japanese cities of Nagoya and Yokohama (4th and 5th) and Kobe (7th). However, currency fluctuations continue to be the main factor impacting the ranking of many Asian locations, ECA's latest report finds. For example, the strengthening of the Korean won against major currencies over the past year, on the back of strong economic performance, has contributed to Korean locations becoming dramatically more costly for assignees and Seoul’s return to the top ten in the Asian rankings. Similarly the appreciation of the Thai baht and the Indonesian rupiah over the same period has contributed to making locations in these countries more expensive places to live. Jakarta has risen 71 places in ECA’s global ranking to 121st position.

"Companies sending employees on international assignments pay them cost of living allowances in order to enable them to maintain their purchasing power on assignment," explains Quane. "The changes in the cost of living seen in locations such as Jakarta, Seoul, Shanghai and Tokyo underline the need for companies to monitor and review allowances in order to ensure that these keep pace with changes in exchange rates as well as prices."

Hong Kong, however, has fallen slightly in the global ranking, from 30th position last year to 34th this year. ECA suggests that this is the result of the relatively weaker currency, counteracting the fact that inflation for assignees has increased at a faster rate in Hong Kong than in many other developed cities surveyed.

"Hong Kong remains the most expensive location in greater China," notes Quane. "Prices of goods and services commonly purchased by assignees there have increased more quickly than in other cities within the greater China area and this has contributed to the city rising slightly in the Asian ranking. However, the peg to the USD has offset the extent of this increase so that globally the city has fallen in the ranking."

Although exchange rates have been the driving factor behind movements, several locations in Asia have experienced considerable inflation in between cost of living surveys, including Thailand, India, Philippines and Vietnam.

"Inflation has re-emerged as a major challenge as Asia recovers from the economic recession," observes Quane. "The prices paid by international assignees have increased even in developed economies, such as Hong Kong and Singapore. Elsewhere, political situations are having an impact: the unrest in Bangkok has seen prices rise there since we began undertaking this year’s survey." Karachi, Islamabad and Kolkata are the cheapest locations in the region for international assignees.

In Europe, Oslo replaces Copenhagen as the continent's most expensive city, thanks to the strengthening Norwegian krone relative to other currencies. Russian locations, which had fallen in the ranking a year ago as the ruble weakened, are now climbing back up as the currency has strengthened against major currencies; Moscow has regained its place within the region’s top ten. Swiss locations, as well as Finland’s Helsinki and the French capital, Paris, can also be found at the top of the European ranking.

The weakness of sterling means that many of the Western European capitals remain more expensive than central London including Brussels, Berlin and Amsterdam. UK locations remain among the cheapest within the region alongside Prague, Warsaw and Budapest.

Continuing economic uncertainty in the Eurozone, particularly in recent weeks, means that the value of the euro remains particularly fragile.

"The movement of the euro will be one of the key factors to monitor over the coming months for companies sending assignees out of the euro region into Asia, and vice versa" explains Quane. "If the euro continues to depreciate in value against Asian currencies, as it has in recent weeks, companies will need to actively monitor the extent of the fall in the value of the currency or review the way that they deliver salary to their assignees in order to ensure that they are not adversely affected by the fall in the value of the euro."

In the Americas, Rio do Janeiro is now the most expensive location surveyed for international workers. This is in sharp contrast to a year ago when a drop in demand for commodities weakened the currency.

Within North America, Manhattan is the most costly location followed by Honolulu. In general, US locations have fallen down the rankings slightly, reflecting the weakened dollar.

In contrast, the Canadian dollar has strengthened against major currencies resulting in a rise in the ranking of the Canadian locations studied. Vancouver is the most expensive location for international assignees followed by Ottawa and Toronto.

In Africa and the Middle East, the Angolan capital, Luanda, is the most expensive location, although it has slipped to third place worldwide for the first time since 2006. Despite increased price levels in Luanda during the survey period, the loosening of the Angolan currency’s unofficial peg against the US dollar has led to the depreciation of the Kwanza. This has more than offset any price inflation.

"While some may find it surprising that this African location is even in the top three," says Quane "items frequently purchased by assignees can be very expensive in Angola due, particularly, to decades of war resulting in a much damaged infrastructure, making supplies difficult to get through."

Maseru in Lesotho is the cheapest location within Africa for visitors with items costing 65% less there than when purchased in Luanda. Despite the rand strengthening against major currencies between surveys, South African locations remain among the cheapest locations.

Israel’s capital, Tel Aviv, remains the most expensive place for visitors to the Middle East. Jeddah in Saudi Arabia is the cheapest. Both Dubai and Abu Dhabi in the UAE where the currency is pegged to the US dollar, have fallen in the ranking.

According to ECA, the top ten most expensive cities worldwide in 2010 are: Tokyo, Oslo, Luanda, Nagoya, Yokohama, Stavanger, Kobe, Copenhagen, Geneva, and Zurich.