Dubai and Abu Dhabi deflation makes cities cheaper in global ranking

Hong Kong retains spot as most expensive city globally, while dollar strength and weak eurozone affect top 10

Dubai moved to position 23 from 21 last year, retaining its position as the most expensive city in the Middle East. Pawan Singh / The National

The cost of living in Dubai and Abu Dhabi has decreased due to a softer real estate sector and subsequent deflation, making the cities less expensive for expatriates to live in globally.

Dubai moved to 23rd in the rankings from 21st last year, but retained its position as the most expensive city in the Middle East, and Abu Dhabi moved to 39th from 33rd last year, in the annual Cost of Living Survey from global consultancy Mercer.

The ranking of 209 cities measures the cost compared to New York of hundreds of items in 10 categories, including housing, transportation, food, clothing, household goods and entertainment. Mercer's survey helps determine the cost of expatriate packages for employees on international assignments, which depend on factors such as currency fluctuations, cost inflation for goods and services, and instability of accommodation prices.

Mercer collected data in March and conducted further analysis in April and May to verify that price variances due to the Covid-19 outbreak were not significant.

While the UAE has taken action to limit the financial impact of the pandemic and lower oil prices, such as capping the maximum price for certain products, the negative price movement in Dubai and Abu Dhabi has taken place over the past 12 months, Mercer said.

“Since the beginning of 2019 we have been witnessing a continuous deflation across Dubai and Abu Dhabi primarily driven by the slump in the real estate sector which has made expatriate accommodation cheaper reaching back at the levels of 2013/2014,” said Vladimir Vrzhovski, Mercer’s global mobility practice lead, Mea. “This deflation reflects the drop in ranking of both Dubai and Abu Dhabi making them cheaper than the years before.”

The cost of living index is the cheapest in Dubai since 2015 and in Abu Dhabi since 2014.

The pandemic, which has pushed the global economy into the deepest recession since the Second World War, has led to layoffs and salary reductions. This will challenge global mobility and overseas expansion strategies, Mercer said.

“Border closings, flight interruptions, mandatory confinements and other short-term disruptions have affected not only the cost of goods and services, but also the quality of living of assignees,” said Ilya Bonic, career president and head of Mercer strategy.

Hong Kong retained its spot as the most expensive city globally due to currency movements, with its currency peg to the appreciating US dollar driving up the cost of living locally. Five more cities in Asia, including Ashgabat in Tajikistan, Tokyo, Singapore, Shanghai and Beijing were ranked in the top 10.

The strength of the dollar also drove up costs for expatriates in US cities, with New York moving up from ninth to sixth place this year.

Swiss cities Bern, Geneva and Zurich are among the top 10 list of most expensive locations. Paris, Milan and Frankfurt dropped in this year’s ranking as eurozone growth came close to zero at the end of 2019, Mercer said.

In the GCC, Riyadh trails Dubai as the next most expensive city, coming in 31st compared to 35th last year. Manama, Bahrain, moved up slightly to 52nd from 57th; Muscat, Oman edged up to 96th from 103rd; and Kuwait City jumped to 113th from 119th. Saudi Arabia's Red Sea port city of Jeddah dropped to 104th from 100th.

Saudi Arabia has seen prices remain stable over the last six months, but that is set to change as the country suspended the cost of living allowance and is tripling value-added tax to 15 per cent starting from July to offset the impact of the coronavirus pandemic on its economy, Mercer said.

Governments in the Gulf affected by both Covid-19 and lower oil prices have released economic stimulus packages to support individuals and businesses. Keeping control over the cost of living will help expatriates weather the financial storm.

“Attracting highly skilled talent is going to play a crucial role supporting the road to recovery and accelerating the economic diversification of the local economies,” Mr Vrzhovski said. “The balance between an affordable cost of living, high quality of living and competitive salary packages, will support the aim of the governments to develop their city attractiveness proposition and keep their brand as highly attractive cities for expatriates and businesses in the region as well as globally.”