UAE cities more costly, says survey

Residential rents and food price drops fail to stop Dubai and Abu Dhabi jumping up the ranks of the most expensive cities.

Residential rents and food prices may have dropped in the UAE, but the strengthening US dollar has meant that Dubai and Abu Dhabi have jumped up the ranks of priciest cities for expatriates. Dubai is the most expensive city in the Gulf, the human resources consulting firm Mercer said in its new cost of living survey, coming in at 20th out of 143 cities on six continents, up from 52nd last year. The UAE capital made an even bigger leap up the list, rising 39 spots from 65th to 26th place. Nathalie Constantin-Métral, a senior researcher with Mercer, said the strong dollar, to which the dirham is pegged, played a big role in pushing the UAE cities so far up the list. The cost of living basket of goods and services that Mercer measures is compared against New York, the base city, she said. "Since the US dollar has strengthened against many major currencies, it makes US cities and cities pegged to the dollar more expensive to live in." Abu Dhabi rose slightly faster up the list than Dubai because of higher accommodation costs, Ms Constantin-Métral said. Cities in other GCC countries, most of which also peg their currencies to the dollar, climbed up the list as well. Riyadh rose from 119th to 90th, while Jeddah was up from 126th to 109th, though it was still the least expensive city in the region. Kuwait City rose from the 94th spot to 77th, while Manama, Bahrain was up from 112th to 82nd. The survey, which is used to help multinational companies and governments determine compensation for their expatriate employees, measures the cost of a basket of 200 goods and services in each city, including housing, transport, food, clothing and household goods. The dollar has steadily gained strength in the wake of the economic downturn. In March, when Mercer conducted its survey, the dollar spot index hit a two-year peak. However, the Japanese yen has strengthened considerably against the US dollar, and that helped to knock Moscow, last year's priciest city, down to third place as Tokyo topped the index for most expensive city in the world for expatriates. Another Japanese city, Osaka, came in second, up from 11th place in the previous survey. European cities fell steeply down the list, with London slipping from third place last year to 16th. Meanwhile, US cities climbed up the ranks as New York, the most expensive American city, rose to 8th from 22nd. Philippe Dauba-Pantanacce, a senior economist at Standard Chartered Bank in Dubai, said the steep falls in countries more affected by the downturn also helped contribute to the UAE cities' rise in the rankings. "Even if inflation has slowed down in the country, in other countries, especially in the European zone, we are talking about deflation and prices actually contracting," he said. Inflation in the UAE last year was 12.3 per cent, a 20-year high, Mr Dauba-Pantanacce said. This year, Standard Chartered is predicting an inflation rate of 2.5 per cent. Day-to-day living costs in the UAE have largely come down, especially food, as commodity prices have fallen, said Robert Ziegler, the vice president of AT Kearney in Dubai. "There was some extreme price peaks in the last year, especially early to mid-2008, and that has very much normalised," Mr Ziegler said. Rents, at least in Dubai, have dropped, but because of long-term rental contracts this would take some time to be reflected in the overall market, he said. Although living costs in the UAE may not be rising as rapidly as they did last year, it is worrying that Dubai seems to be becoming less attractive for expatriate workers, Mr Dauba-Pantanacce said. "One of the major value propositions in Dubai, in terms of a global hub, was that it was cheaper," he said. [e-mail]