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20th August 2010

Cost of living here not so bad

Australian cities offer a better cost of living option for expatriates than other major commercial cities in the Asia Pacific region, a new survey has found.

The latest Cost of Living Survey from global research firm Mercer shows that for companies extending their business to the Asia Pacific region, Australian and New Zealand cities remain cost competitive destinations for global workers in comparison to cities such as Tokyo and Osaka (the region's most expensive) and other major commercial hubs such as Hong Kong,
Singapore and Beijing, all of which ranked within the top 20 cities.

Australia's most expensive city, Sydney, ranked 24th, followed by Melbourne (33), Brisbane (55), Perth (60) and Canberra (74), while Adelaide (90) is the country's least expensive city.

In New Zealand, Auckland ranks in 149th place, while Wellington is the least expensive city of the two (163).

Luanda in Angola is the world's most expensive city for expatriates, according to the survey. Tokyo is in second position, with Ndjamena in Chad in third place. Moscow is in fourth position followed by Geneva in Switzerland, which placed fifth.

Karachi in Pakistan is ranked as the world's least expensive city. The survey found that Luanda is three times as costly as Karachi.

The survey covers 214 cities across five continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is the world's most comprehensive cost of living survey and is used to help multinational companies and governments determine compensation allowance for their expatriate employees. New York is used as the base city for the index and all cities are compared against New York. Currency movements are measured against the US dollar. The cost of housing - often the biggest expense for expats - plays an important part in determining where cities are ranked.

For the first time, the ranking of the world's top 10 most expensive cities includes three African urban centres: Luanda (1) in Angola, Ndjamena (3) in Chad and Libreville (7) in Gabon.

The top ten also includes three Asian cities; Tokyo (2), Osaka (6) and Hong Kong (jointly ranked 8).

Moscow (4), Geneva (5) and Zurich (joint 8) are the most expensive European cities, followed by Copenhagen (10).

The Australian Dollar and the New Zealand Dollar significantly strengthened against the US Dollar, as at February 2010, making these cities more costly for expatriates coming from the US. These currency movements reflect the stability of the Australian and New Zealand economies earlier this year, relative to the rest of the world.

Anthony Shippard, Senior Associate at Mercer, said that to establish true `value of living' in a particular location, `quality of living' standards should also be taken into consideration.

"If we take into account the results of Mercer's 2010 Quality of Living survey earlier this year, it found that Australian and New Zealand cities rank among the world's top 36 cities for overall quality of living, dominating the rankings in the Asia Pacific region," Mr Shippard said.

"Combining the Cost of Living findings with overall Quality of Living standards reinforces the need for multinational organisations to regularly review multiple external factors and data shifts when determining their expatriate management programs," he said.

After Moscow, Geneva, Zurich and Copenhagen, the most expensive cities in Europe are Oslo (11) in Norway, Milan (15) in Italy, London and Paris (both 17) and Bern (22) in Switzerland. 

Fixed rates losing popularity

The number of Australian borrowers taking out fixed rate home loans continues to drop, mortgage broker Mortgage Choice announced this week.

In July 2010, the popularity of fixed rate home loans dropped to 2 per cent of all new approvals.

Mortgage Choice brokers reported that the majority of new borrowers are taking out standard variable loans, mainly because of the wide range of professional packages on offer with these products, such as interest rate discounts along with `Gold' credit cards and other special features.

Spokesperson Kristy Sheppard said that on a national level, the demand for fixed rate loans has stood at less than 5 per cent of all the company's new approvals for 11 months and less than 10 per cent of approvals for 25 months.

"With fixed rate home loans at a mere 2 per cent of all our July home loan approvals, it has now been more than two years since this loan type has poked its head above 10 per cent of new approvals for any month," Ms Sheppard said.

"This is despite less than half a percentage point difference between our average basic variable rate and the three-year fixed rate, which converts to less than $100 per month on a $300,000 loan.

"New borrowers are simply steering clear and taking their chances with variable rates", she added.

"Even the state where we're seeing the highest demand, New South Wales, is only experiencing a take-up rate for fixed loans of 3 per cent of all approvals.

"Western Australia, the state with the lowest level of demand, saw less than half a percent of its approved July home loans being fixed, which was a decrease of almost two percentage points from June."

Nationally, standard variable loan demand rose to 52 per cent of June approvals, four percentage points above the 12-month average and the highest level reached since October 2008.

Other key home loan choice trends for the middle of winter were:

Basic variable: remained steady month-on-month at 42 per cent.

Line of credit (often popular with investors): fell to 4 per cent of approvals from 5 per cent.

Bridging (for those selling property while purchasing another): remained well below 1 per cent.