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Expatriate accommodation around the world 2015/16

The subdued global economic growth of the past year has had a significant impact on rental rates around the world. The majority of the locations surveyed by ECA have witnessed very static rental trends, with minimal movements in the last year. This is a strong indication of a healthy balance between supply and demand on the market. Moreover, low inflation has helped to keep wage rises down, which has had an effect on renters’ purchasing power, so landlords have been unable to drastically increase rents, accepting stability or a slight decrease as a way of protecting their rental income.

Rents on the rise…

Despite the wider trend of stability, ECA has observed a number of locations posting significant gains in average rents in recent surveys, with more markets showing rental increases of 5% or more than those showing reductions of a similar scale. The main cause behind these uplifts is the supply of suitable properties failing to keep up with increasing demand, as more and more people – both locals and expatriates – have moved into the cities. It’s particularly noteworthy that newer business hubs have seen faster rental price growth than their more traditional counterparts. For instance, rental costs in Birmingham and Leeds, as well as Chicago and Miami, have grown significantly faster than those in London and New York, respectively.

Perhaps some of the more surprising locations suffering from limited availability are South Africa and Ireland. Demand for expatriate accommodation has continued to steadily increase in South Africa over the past few years. Many high-end developments have been snatched up by international investors taking advantage of the weakening South African rand, further reducing the already limited stock of rental properties. Ireland has enjoyed much faster economic growth compared to most other European locations, with competitive corporation tax rates and comparably low cost of living making it an increasingly desirable location for multinationals to establish their headquarters. This has resulted in high demand for a limited supply of rental accommodation, as the influx of newcomers has put a significant strain on the housing market. In addition, the Irish government has restricted lending rules on mortgages, resulting in more people joining the already overcrowded rental market as they are unable to climb onto the property ladder.

...unless you happen to be home to oil and gas

Even if more locations have witnessed rents growing rather than falling, those going down have plummeted with significant force. The commodities markets have experienced a dramatic slump in recent years. Oil prices began their crash in mid-2014, reaching a historic low in January 2016 when a barrel of Brent crude traded for only USD 26, compared to typical pre-crash barrel prices of USD 95. Although oil prices have since recovered from the low point, they are still only around half of what they were before the crisis. The collapse has wreaked havoc in the commodities markets, with revenues falling in line with prices.

This has had a significant impact on the global economy as a whole, and particularly on vital hubs in the oil and gas market. Many oil and gas companies have been forced to severely cut back on spending in order to alleviate the losses from unprofitable production and shrinking profits. Production and exploration have been significantly pared down, and thousands of employees have been laid off. These factors have combined to pronounced effect in primary locations in the industry, most of which have seen sharp falls in demand for accommodation as companies have scaled back their assignee numbers. As a consequence, landlords have been forced to reduce rents in order to attract tenants from the shrinking expatriate pool, who have also lost some of their premium allowances as a cost-cutting measure. Johor Bahru, Calgary, Port of Spain, Caracas, Riyadh, Stavanger, Aberdeen, Perth and Luanda are some of the locations worst hit by the slumping oil prices.

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Russia has seen the largest market adjustments in the past year. Rents in both Moscow and St Petersburg plummeted in 2015 and continued to fall in early 2016. While the oil crisis has clearly exacerbated the situation, Russia’s military excursions in Ukraine are behind much of the turmoil. As a consequence, various states have slapped hefty sanctions on the country, and several multinationals have either ceased business activity in the country entirely, or significantly cut back their operations there. The resultant exodus of assignees from Russia has dramatically impacted demand for expatriate accommodation. Given that the sanctions were recently extended for at least another year, the economic downturn and instability are not likely to disappear in the near future.

Currency conundrums

Although the majority of residential markets have rental prices displayed in local currency, this is not always the case. Currency fluctuations and landlord preference mean that rents are sometimes advertised and collected in “global” currency, typically US dollars. Hard currency can provide a much more stable stream of rental income to landlords, particularly when local currency is weak or volatile. In some locations, it can be difficult to obtain hard currency via official routes, and so having a guaranteed inflow of a more precious currency can be very tempting. For the lessees, rental payments in hard currency protect them against often unsettling fluctuations in exchange rates. For tenancy agreements in hard currency, it is often recommended to include a clause that necessitates a rent review if exchange rates move significantly up or down in order to protect both parties.

Over the last year, we have noted a number of locations moving towards advertising properties in local currency. As markets develop it sometimes becomes more common to advertise expatriate-standard properties in a local currency over a global one, as it becomes the mainstream option on the market. This has been the case in both Nigeria and Kazakhstan. It is still common to find rentals advertised in USD in both locations, and not all transactions will necessarily be in local currency, but the use of both the naira and tenge has become significantly more widespread among the upper reaches of the market, which typically cater for expatriates.

However, a change in currency is not always due to prevailing trends in landlord practices. Although it is not very common, governments can sometimes intervene to regulate the use of different currencies. This is typically the result of a country’s desire to protect and strengthen its own currency. Indonesia offers the best recent example: the government pushed through new legislation in 2015 that prohibits the use of foreign currency in most transactions, including rental payments. The sanctions for not abiding by the new regulation are severe, including hefty fines and lengthy prison sentences. The protectionist measure was intended to strengthen the rupiah, which had grown continuously weaker since the Asian financial crisis of the late 1990s. The gamble to strengthen the rupiah has so far paid off, and the currency has stopped its plummet and in fact became one of the best-performing in 2016. The inflated aspect of the currency means that monthly rents in Jakarta can reach nine digits!

Even though some countries officially have this sort of legislation in place, it is worth noting that the laws may not always be followed. In many cases like this, expatriates are still expected to pay rent in hard currency and our published data reflects this.

ECA will conduct interim surveys in September for both Russia and Nigeria in order to monitor their rapidly changing housing markets. Meanwhile, to keep up with all major economic changes and their impacts on global mobility, make sure to follow ECA’s blog.

ECA’s Accommodation Surveys
ECA conducts two accommodation surveys per year:

March survey; published in June
September survey; published in December

Locations surveyed in March are typically located in North America, Western Europe and Australasia. The focus in September is on Asia, Africa, Latin America and Central & Eastern Europe. Locations with volatile rental markets are surveyed in both March and September.
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