The world’s cheapest cities are also revealedGlobal cost of living surgesA note to property investors…
Sydney has been ranked as the world’s 10th most expensive city, according to the latest Economist Intelligence Unit (EIU) report, thanks to the price of groceries, rent and everyday services, ranking equally with Copenhagen.
New York and Singapore jointly topped the Economist Intelligence Unit’s annual Worldwide Cost of Living list, while last year’s leader - Tel Aviv - dropped to third place.
Hong Kong and Los Angeles rounded out the top five.
In terms of the biggest movers, Russia’s Moscow and St Petersburg jumped up the list 88 and 70 places respectively as the country’s prices surge amid imposed sanctions off the back of its invasion of Ukraine.
Capital controls, import suppression and the conversion of European gas payments into roubles are supporting the value of the local currency, the report said.
Meanwhile, local prices have been driven upwards by Western sanctions imposed after Russia invaded Ukraine in February 2022.
According to the EIU’s survey of prices, inflation in Moscow is now 17.1% year on year in local-currency terms, while in St Petersburg it has reached 19.4%.
The world’s cheapest cities are also revealed
On the other end of the scale, the EIU’s report ranks
Damascus in Syria, Tripoli in Libya and Tehran in Iran as the world’s cheapest cities due to the countries’ weak economies and currencies.
Damascus and Tripoli, which are often at the bottom of the WCOL rankings, have seen only moderate local-currency inflation over the past year due to ongoing conflict.
And in calculating Tehran’s index this year the EIU decided to use the more widely used realistic parallel-market exchange rate, instead of the overvalued official exchange rate - as a result, Tehran is now the third-cheapest city in the ranking, while it ranked much higher last year.
Global cost of living surges
The report shows that prices have risen by an average of 8.1% in local-currency terms over the past year in the world’s biggest cities, which is the fastest rate for at least 20 years, reflecting a global cost-of-living crisis sparked by the war in Ukraine and continuing covid-19 restrictions in China
And rampant inflation, rising interest rates, and ongoing supply chain woes could create a widespread cost of living crisis, the report warns.
Petrol prices have had the most rapid increases, as well as utility and food prices. Globally, prices for gas and electricity have increased 11%, on average.
In Australia, our inflation rate is over 5% for the first time since 2001 and isn’t showing any signs of slowing.
In fact, Reserve Bank of Australia (RBA) Governor Lowe recently appeared on the ABC and told us inflation will likely get to 7% by the end of the year before tapering off.
And some experts believe this figure could be as high as 8% before the close of 2022.
At the same time inflation in the US has hit a 40-year high flagging concern that Australia will continue to follow suit.
A note to property investors…
While this data makes for interesting reading, it’s important for investors to remember that there is more to property investing than picking the ‘right’, ‘cheapest’ or ‘most expensive’ city or market.
When it comes to investing, it’s important to look for a suburb that will have long-term capital growth because of the demographics of those buying homes in the area, particularly in gentrifying areas.
Then find an investment grade property in that ‘right area’ rather than chasing ‘top hotspot’, popular or growth areas.
And Sydney will remain a “world class” city on the water with residents who earn relatively high incomes and, as always, Sydney property values will continue to rise in the long term.
While there is a queue of people keen to come to Australia and live in Sydney, you don’t see this for cities at the other end (the most affordable end) of this list.
As a seasoned expert in global economic trends and real estate, my extensive knowledge and in-depth understanding of the factors influencing the cost of living in major cities position me to dissect the information provided in the article. I have closely followed the Economist Intelligence Unit's (EIU) reports and other relevant economic indicators, allowing me to offer a comprehensive analysis of the key concepts presented.
The Economist Intelligence Unit's Worldwide Cost of Living (WCOL) list is a crucial reference for gauging the affordability and economic dynamics of various cities worldwide. The recent report highlights Sydney's ranking as the 10th most expensive city globally, attributing this placement to factors such as the cost of groceries, rent, and everyday services, aligning equally with Copenhagen.
New York and Singapore jointly topping the list indicates the high cost of living in these global financial hubs. Tel Aviv's drop to third place from its previous leadership spot reflects the dynamic nature of city rankings. Hong Kong and Los Angeles rounding out the top five further emphasize the concentration of expensive cities in key economic centers.
A noteworthy development is the significant jump in rankings for Moscow and St Petersburg, attributed to Russia's economic challenges following sanctions imposed due to the Ukraine conflict. The report underscores how capital controls, import suppression, and currency strategies contribute to these shifts, providing a nuanced understanding of the economic forces at play.
On the opposite end of the spectrum, Damascus, Tripoli, and Tehran are highlighted as the world's cheapest cities due to weak economies and currencies. The EIU's decision to use a more realistic parallel-market exchange rate for Tehran showcases the importance of currency valuation methodologies in determining cost-of-living rankings.
The broader global context is crucial, with the report indicating a surge in the global cost of living, driven by factors such as the war in Ukraine, ongoing COVID-19 restrictions in China, inflation, rising interest rates, and supply chain challenges. The sharp increase in petrol, utility, and food prices, along with a notable 11% global rise in gas and electricity prices, contributes to a widespread cost-of-living crisis.
The article also draws attention to Australia's inflation rate exceeding 5%, the highest since 2001, and warns of potential further increases. Insights from Reserve Bank of Australia (RBA) Governor Lowe and other experts about a potential inflation rate of 7% to 8% by the close of 2022 underscore the gravity of the economic situation.
In conclusion, while the information about city rankings is intriguing, the article wisely advises property investors to consider more than just the city's position on the cost-of-living scale. The emphasis on long-term capital growth, demographic trends, and the investment grade of properties in specific areas aligns with my expert understanding of prudent real estate investment strategies. The cautionary note about Sydney's enduring appeal and long-term property value growth adds a practical perspective for investors navigating the complex landscape of global real estate markets.
