(MENAFN - Khaleej Times) Dubai and Abu Dhabi's ranking in the cost of living index went up in 2019 but actual cost of living - or inflation - declined due to fall in housing rentals and prices of commodities as the US dollar and the UAE dirham strengthened against the European and other free-floating currencies over the last 12 months.
According to Mercer's 2019 Cost of Living survey of 500 cities released on Wednesday, Dubai's ranking jumped from 26 to 21 while Abu Dhabi rose from 40 to 33.
Vladimir Vrzhovski, global mobility consultant for Mercer Mena, said the cost of living in Dubai went down while ranking moved higher because a lot of European cities saw their currencies depreciating against the dollar. Hence, the cost of living and ranking of those cities went down faster.
"The cost of living in Dubai and Abu Dhabi actually went down for residents. Their ranking went up because a lot of European cities dropped in ranking due to a weak euro. So when the European currency declined, it pushed Dubai's ranking up," he said.
"If we see from global perspective, it does look Dubai became more expensive; but when you're living in the country, there has been a big decrease in prices for the last 12 months.
Statistically speaking, we are looking at 2.09 per cent deflation between April 2018 and 2019 and that is mostly driven by decline in housing rents. Imports of goods from China also became cheaper due to the strengthening of the dollar against the yuan. Overall, living is cheaper here," Vrzhovski told Khaleej Times in an interview.
Nirav Shah, director of Fame Advisory, said in order to remain an attractive city for expatriates, the cost of living in Dubai has to be lower than the big cities such as London and New York.
"For example, education in Dubai for private schools is at least 30 per cent more expensive than Abu Dhabi. This indirectly increases cost of living for people here which can be reduced to some extent," Shah said.
However, overall quality of life and infrastructure, he said, is certainly comparable to any leading cities of the world.
According to Mercer, the ranking of other Gulf cities also moved up due to the pegging of their currencies to the greenback but actual cost of living went down some of those cities. For example, Riyadh's ranking jumped 10 places to 35, Manama rose 20 places to 57, Jeddah moved up from 117 to 100, Muscat from 117 to 103 and Kuwait from 121 to 119 in the Mercer's cost of living survey.
Vrzhovski said due to the strong performance of the greenback, countries with currencies which are pegged to the dollar, have risen in the ranking compared to most of the European cities.
"While cities in the UAE have risen up the ranking for cost of living, the country continues to be an appealing location for expats due to highly competitive compensation packages, falling real estate prices, high safety standards, and a healthy economy. Local inflation level has come down for the last 12 months due to falling rental prices and the full phase in of the VAT implementation," he said.
"Many currencies in the Middle East are pegged to the US dollar, which pushed cities up in the ranking, as well as steep increases for expatriate rental accommodations," said Yvonne Traber, global mobility product solutions leader at Mercer.
Globally, eight of the top ten cities in this year's ranking are in Asia due in part to a strong housing market.
Hong Kong remains the most expensive city for expatriates both in Asia and globally as a result of the housing market and currency being pegged to the US dollar, driving up the cost of living locally. This global financial center is followed by Tokyo (2), Singapore (3), Seoul (4), Shanghai (6), and Ashgabat, Turkmenistan (7).