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 When planning an international move, it is important to check the cost of living index to ensure that your revenues will be sufficient to cover the costs you will incur in your new city of residence. X-expats interviewed Steven Coleman, Chief Instigator at Xpatulator.com a web-based service that provides cost of living index information and calculates what you need to earn to compensate for cost of living, hardship, and exchange rate differences. Steven started out in Human Resources and eventually specialized in Reward Consulting, which included Expatriate Pay / International Assignment related projects. Now, he oversees all aspects of Xpatulator’s content including data collection, calculators, and reports.
X-Expats: How do you gather the data to conduct the surveys? What methodologies do you apply to determine the ranking of cities?
Steven Coleman: We use more than 50 types of data sources, including our Xpatulator algorithm. The algorithm calculates the quantity and price ratio for a minimum of 3 products or services for each item in each basket so that we report prices for the same quantities in each location. Xpatulator.com gathers information for approximately 140 different goods and services. We collect the price and quantity of each item. For ease of use, the 140 goods and services have been grouped into 13 basket groups. Our methodology to compare the cost of living is to use the total cost of the basket in each location. The difference in the cost of the basket at the ruling exchange rate is the cost of living difference. The methodology in our Cost of Living Index calculator (COLI) is to allow the user to choose the Home / Base Location and then to choose up to 281 Host Locations.
The Cost of Living Index for the Home / Base Location is set at 100 and all Host Location Cost of Living Indexes expressed as an index (percentage) of the Home / Base Location. For example, if your Home / Base is Paris, then Paris’ Cost of Living Index is 100. If another city has an index of 80 it means the cost is 80% of the cost in Paris (i.e. 20% less than Paris). If an another city has an index of 110, it means that the cost is 110% of the cost of Paris (i.e. 10% more than Paris). Sources of raw data include local service providers in each location, international service providers, official governmental statistics and global agency data. The data is thoroughly quality assured and manually checked by our Analysts.
X-E: Are there categories/items that fluctuate greatly country to country?
SC: While we often talk about the overall cost of living differences between countries, the variations depend upon the basket items that are included or excluded. Hong Kong is a good example. If you include accommodation in the calculation of the cost of living, Hong Kong ranks high, but if you exclude accommodation, the cost of living is lower. Multinationals that provide accommodation to employees in Hong Kong, should therefore exclude accommodation from the calculation of the cost of living. In our Salary Purchasing Power (SPPP) and Cost of Living Allowance (COLA) calculators, the basket groups that are excluded are those that will be provided by either the employing company or in some cases, by the state in the new location. The basket groups that are included in calculating the cost of living differences are those that will be paid directly by the employees out of their salary.
X-E: What striking changes have you noticed in your last survey? What developments do you anticipate in the future?
SC: Based on our July 1, 2010 update, Asia-Pacific has the top two most expensive cities in the world. Tokyo is first, Hong Kong ranks second (most expensive in greater China), whilst Sydney holds the third place in the Asia-Pacific region (13th place in the world). Europe’s most expensive cities are those that are not in the Euro zone. The most expensive one is Geneva (ranked third in the world). Most cities in the Middle East have experienced a drop in inflation in the past two years following a period of relatively high inflation. The largest change in cost of living has been for Dubai (ranked 131 in the world) with a cost of living index of 82.15 (New York = 100), currently holding the sixth place although it was previously ranked amongst the most high-priced cities in the region. Household accommodation, which comprises 30% of the 13 basket groups based on expatriate expenditure norms, has fallen dramatically in Dubai in the past year, as a result of over-supply and the financial crisis. Africa’s most expensive city for expatriates is Luanda in Angola  (ranked 15 in the world) with a cost of living index of 106.17 (New York = 100). Luanda is particularly expensive for education, (ranked 3 in the world), accommodation (ranked 5 in the world), and healthcare (ranked 6 in the world). Luanda is rebuilding its infrastructure after years of war. The lack of availability of products as well the cost of bringing those into the country, have contributed to making goods and services purchased by expatriates expensive. It is difficult to forecast future trends, but from the number of reports being requested, it seems more expatriates are being sent on international assignments in 2010 than in 2009.
X-E: In your practice, which cities generate the most interest from clients (i.e. inquiries, reports, etc.)?
SC: The cities currently generating the most interest are London, Singapore, Paris and New York. A few years ago, Dubai generated most interest; now most reports originating from this city are from this location to somewhere else.
X-E: In your experience, what erroneous assumptions do people make when relocating abroad?
SC: Many people do not do their homework in calculating how far their salary will go in the new location. Often what appears to be a great salary is neutralised by a high cost of living, which results in having to compromise on the lifestyle they are used to, or in the worst case, less savings than expected. Another belief is that benefits, such as housing, medical, education etc. will be fully covered and at a standard they have previously enjoyed in their home country. Further, assuming that the company will help with the initial orientation in the new city is often erroneous. Many expatriates still do not visit the location prior to the assignment, and a number of organizations leave the employee to figure out the “less important stuff” such as getting a phone line / internet connection, buying furniture, posting a letter, finding out where the children can do extramural activities etc.
X-E: What are your recommendations for returning expats trying to determine their cost of living/ allowance required to live in the city of their choice?
SC: It is equally important for expats to determine how far their salary will go in the home country when they return at the end of an assignment. Many allowances and benefits cease when the expat returns home. Tax may also increase. Often what appears to be a great home salary is neutralised by increases in cost of living while they have been away, which results in having to compromise on their “ quality of life”.
X-E: Are there additional resources you would recommend to returning expats to determine the cost of living in a particular city?
SC: I recommend making use of calculators such as Xpatulator.com, but also to participate in expat forums, check out real estate prices and other costs where you intend to live to make sure your home salary will be sufficient. It is always helpful to put together a comprehensive home budget in order to get a realistic picture of your own cost of living. Another thing to keep in mind is that returning expats are often promoted upon their return or shortly thereafter, so there are additional benefits to going on an overseas assignment in addition to broadening your experience, benefiting from the opportunity to travel and exploring new places.
X-E: The cost of living index provides critical information when planning an international move. Thank you Steven for sharing your research and findings.
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