Singapore's costs overtake Hong Kong for first time, Mercer says

Singapore overtook Hong Kong as a more expensive city for expatriates for the first time, driven by a stronger currency and higher rents, according to Mercer’s Worldwide Cost of Living Survey.

The island-nation was ranked the eighth-most expensive city worldwide, rising from the 11th spot last year following a “substantial increase” in housing costs, Mercer said in an e- mailed statement today. Hong Kong dropped one level to ninth place, the survey showed.

Singapore’s record economic growth last year helped the city to become home to the world’s highest proportion of millionaire households at 15.5% of the population, according to a Boston Consulting Group report in May. Inflation rose 4.5% in May, exceeding economists’ estimates, as food and transportation costs climbed, supporting the central bank’s decision to allow the currency to appreciate further.

 

“You have got high inflation and we’re talking generally about consumer price pressures, rise in property prices, the strong Singapore dollar and tight labor markets,” Vishnu Varathan, an economist at Capital Economics Asia Pte. in Singapore, said by telephone. “So it’s quite clear how Singapore managed to edge out Hong Kong.”

 

The Singapore dollar has risen about 13% in the past year against the U.S. dollar, matching the South Korean won as the two best performers among the 10 most actively traded currencies in Asia excluding Japan. The island-nation uses the exchange rate as its main tool to manage inflation and has allowed its currency to appreciate to a record to contain price gains.

‘CHINA EFFECT’

The Hong Kong dollar’s peg to the weakening U.S. dollar had little impact on the city’s ranking due to increasing housing costs, the report said. Hong Kong may also be hurt by China’s efforts to cool the economy through housing curbs and five interest rate increases since October.

 

“One might argue that the China effect on Hong Kong might be a little bit more pronounced,” Varathan said. “So if China’s engineering of a soft landing is in fact quite effective, then Singapore might remain ahead of Hong Kong in that sense.”

 

Singapore’s economic expansion has pushed the unemployment rate to a three-year low and economists including Irvin Seah from DBS Group Holdings Ltd. say rising labor costs are adding to the risk that inflation may accelerate. The city’s home prices have climbed for eight straight quarters to a record, prompting the government to introduce measures to curb speculative buying.

 

Luanda in Angola retained its title of the world’s most expensive city, while Tokyo was ranked No. 2, Mercer said. New York City, the most expensive U.S. city, dropped to 32nd spot from 27th, while London slipped one place to 18th.