Q.4 2021

Data Points

A Selection of AIRINC Research Results

This quarter’s cost of living research was conducted primarily in Europe, Asia, and mainland Southeast Asia.

Housing Update

Snapshots of expatriate-quality rental markets around the world

Repatriation

Utility Rates in Europe

Milan, Italy

The United Kingdom

New Delhi, India

South Korea

Repatriation

While rents fell in some cities when expatriates left during the pandemic, other cities saw a surge in repatriation of their own citizens who more than filled the housing demand gap. In Tel Aviv, many Israelis who had temporarily been living abroad returned home. Similarly, in Shanghai and Guangzhou, nationals returned, bringing both their immediate need for housing and their investment capital. In Moscow, a relocation housing source noted that Russian tenants are increasingly occupying high-quality rental units and most of their clients are now Russian renters.

Utility Rates in Europe

After a year of low prices in 2020, we are now seeing record-high utility tariffs in some locations. As Europe approaches winter, a surge in natural gas demand is coupled with reduced shipments from Russia. Europe’s reserves are lower than normal as they already used supply to ease high prices at the end of the long 2020-2021 winter. Governments are now trying to mitigate price hikes where they can, but some have been more active than others, and few can absorb the full shock where there is market pricing. Natural gas is used both for heating and electricity generation and has a big impact on utility budgets. Norway, Belgium, Romania, and Ireland are just some of the countries with large changes.

Milan, Italy

The Milan rental market is currently a landlord’s market as a shortage of housing supply led to intense competition for properties. Foreign and domestic renters flocked to Milan at the same time as a new law encouraged renovation, which has effectively taken units off the market while they are under construction. This limited supply allowed the Milan market to stay strong throughout the pandemic while many other cities in Italy suffered huge drops in demand and subsequent rent decreases.

The United Kingdom

Rents increased in the greater London area in the last 6 months. Demand has surged and supply is low, bringing prime central areas of the city almost up to their late 2019 pricing while prime outer areas have already exceeded pre-pandemic levels. Nearly every quality rental property receives multiple offers and is rented above asking price; many are rented even before they are listed. Tenants are advised to be realistic and flexible with their property requirements. The property sales market in the UK has had the busiest year since 2007. Some of these sales were landlords reducing their portfolios, putting pressure on rents as supply has fallen. Secondary cities have seen rising rents as people relocate from London seeking more space and lower prices. Edinburgh, Nottingham, Peterborough, Reading, and Leeds are some of the competitive markets where landlords have the upper hand.

New Delhi, India

An influx of expatriate arrivals increased rents above pre-pandemic levels. Negotiation is becoming much less common, and landlords are very unlikely to accept less than the asking rent, especially for units in brand-new buildings. New Delhi’s southwest neighborhoods have seen the largest changes and sources expect that new construction in this area will not be completed for another year or more.

South Korea

Major rental markets in South Korea continue to experience significant inflation due to increasing demand as well as changes to tax and real estate law. These legal changes encouraged landlords – especially those with multiple properties – to sell, occupy, or raise the rent of their units. On the southern coast, projects are picking up and more international arrivals are increasing demand in Busan, Geoje, and Ulsan. In Seoul, availability is limited, and vacancy rates are very low.

Goods and Services Update

Highlights from AIRINC’s in-depth research
GCC Tax Reforms
Future Inflation Possible In China
Turkish Lira Depreciation

The Gulf Cooperation Council (GCC) member countries first agreed to collective tax reforms in 2016, including directives to implement a 5% VAT as well as excise taxes, also known as selective taxes and commonly referred to as “sin taxes.” Originally, the six member states (Saudi Arabia, Kuwait, U.A.E., Qatar, Bahrain, and Oman) planned to implement a 5% VAT. Saudi Arabia and the U.A.E. were the first member countries to implement the VAT in January 2018, followed by Bahrain in January 2019, and Oman in April 2021. Both Qatar and Kuwait have yet to introduce the VAT, but they are expected to do so by January 2023.

Although the original VAT was 5%, Saudi Arabia increased their VAT to 15% starting in July 2020. Most recently, Bahrain announced that they will also increase their VAT to 10% effective January 1st, 2022. As a result of this increase, we expect consumer prices to rise starting next year. AIRINC will survey Bahrain in February to gauge any impacts of this increase.

The long-feared and long-expected default of China’s second largest real estate developer, Evergrande, was confirmed in recent weeks by some of the world’s top credit agencies, including Fitch and S&P. Struggling with over $300 billion in liabilities, the company – under government oversight – is expected to focus on protecting the interests of its Chinese employees, contractors, and investors over the interests of foreign investors.

The situation is expected to wreak some degree of havoc on the Chinese economy, with the potential for increasing prices for other developers due to perceived risk from foreign investors, a major downturn for the domestic real estate sector, and the possibility of a credit contagion to other sectors. How the government proceeds will likely direct the course of the crisis, but a recession or sharp inflation are both very possible outcomes in the near future. AIRINC will continue to monitor the situation.

The lira has been one of the worst performing currencies in emerging markets, decreasing 50% year to date. This drastic and consistent depreciation has raised many concerns for anyone in the country making a local salary due to the rise of costs for consumer goods.

The primary cause of the depreciation is the rather strange monetary policy that President Erdogan put in place over the last 6 months. The president has a negative opinion of interest rates and believes that decreasing interest rates will stabilize the Turkish lira. Since September 2021, the rates have been cut 500 points and inflation is expected to continue to rise into the following year. Erdogan has relieved officials who oppose his point of view from their positions, including Central Bank Governor Naci Agbal and the Finance Minister Lutfi Elvan.

Ever since the constitutional referendum in 2017 granted President Erdogan the head of state, it has been difficult for opposition to build against his policies as he gained influence over the judicial system. If Erdogan maintains his aggressive “war” on interest rates, it is expected that inflation will continue to soar, leading to a loss of confidence among foreign investors.

Goods and Services Inflation

Selected locations with inflation higher than 5% for 6 months
Georgia
India
Turkey
Venezuela

Selected 3-month Exchange Rate fluctuations of more than 5%

South Sudan

Currency: SSP

Change vs EUR: -55.4%

Change vs USD: -57.3%

Turkey

Currency: TRY

Change vs EUR: -36.5%

Change vs USD: -39.3%

Afghanistan

Currency: AFN

Change vs EUR: -17.6%

Change vs USD: -21.1%

Zimbabwe

Currency: ZWL

Change vs EUR: -15.5%

Change vs USD: -19.1%

Laos

Currency: LAK

Change vs EUR: -8.9%

Change vs USD: -12.8%

Venezuela

Currency: VES

Change vs EUR: -8.6%

Change vs USD: -12.6%

South Africa

Currency: ZAR

Change vs EUR: -5.6%

Change vs USD: -9.6%

Hungary

Currency: HUF

Change vs EUR: -4.6%

Change vs USD: -8.6%

Brazil

Currency: BRL

Change vs EUR: -3.1%

Change vs USD: -7.3%

Chile

Currency: CLP

Change vs EUR: -2.9%

Change vs USD: -7.1%

Sierra Leone

Currency: SLL

Change vs EUR: -2.7%

Change vs USD: -6.9%

Botswana

Currency: BWP

Change vs EUR: -2.0%

Change vs USD: -6.1%

Poland

Currency: PLN

Change vs EUR: -1.7%

Change vs USD: -5.9%

Seychelles

Currency: SCR

Change vs EUR: -1.7%

Change vs USD: -5.9%

Mexico

Currency: MXN

Change vs EUR: -1.3%

Change vs USD: -5.5%

Pakistan

Currency: PKR

Change vs EUR: -1.2%

Change vs USD: -5.4%

Ethiopia

Currency: ETB

Change vs EUR: -1.1%

Change vs USD: -5.4%

Sweden

Currency: SEK

Change vs EUR: -0.9%

Change vs USD: -5.2%

Peru

Currency: PEN

Change vs EUR: 5.5%

Change vs USD: 1.0%

Sudan

Currency: SDG

Change vs EUR: 5.5%

Change vs USD: 0.9%

China

Currency: CNY

Change vs EUR: 5.8%

Change vs USD: 1.3%

Paraguay

Currency: PYG

Change vs EUR: 6.0%

Change vs USD: 1.3%

Myanmar

Currency: MMK

Change vs EUR: 7.5%

Change vs USD: 3.0%

Israel

Currency: ILS

Change vs EUR: 7.7%

Change vs USD: 2.9%

Palestine

Currency: PLS

Change vs EUR: 7.7%

Change vs USD: 2.9%

Guinea

Currency: GNF

Change vs EUR: 9.3%

Change vs USD: 4.7%

Angola

Currency: AOA

Change vs EUR: 13.3%

Change vs USD: 8.3%

Country
Tax Update

Changes in expatriate tax

Iceland

Macau

Malawi

Timor-Leste

For more information, please see our blog post on COVID-19 tax updates:

Iceland

Adjustments were made to the State Tax Credit, Elderly Construction Fund tax, Child Benefit, and the National Broadcasting Service tax. The tax rate schedule changed, with the lower tax bracket rate reduced from 20.6% to 17%. Social security is unchanged. The net effect is a decrease in income tax for most taxpayers.

Macau

The standard deduction decreased from 30% to 25% of gross salary. Tax rates and social security are unchanged. The net effect is an increase in income tax for all taxpayers.

Malawi

On August 13, 2021 the government implemented a new tax rate schedule for individuals. The new tax rates have a new top marginal tax rate increasing from 35% to 40% and lower tax rates at lower incomes. The net effect varies by income level. There is no change for incomes below MWK 1,250,000, a decrease in tax for incomes between MWK 1,250,000 and MWK 82,850,000, and an increase in tax for incomes exceeding MWK 82,850,000. Social security is unchanged.

Timor-Leste

Timor-Leste has a new social security scheme. Compulsory employee contributions are 4% uncapped and employer contributions are 6% uncapped. Income tax is unchanged.

Research Location Update

Q.4 2021 Researched Locations and Upcoming Q.1 2022 Locations

AIRINC researches more than 150 locations each quarter.

Q.4 2021 Researched Locations
Q.1 2022 Upcoming Locations

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Benchmark Surveys

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White Papers & Articles

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For More Information

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