The most expensive destinations for expats and businesses
For businesses, the soaring cost of living in major expatriate cities translates into higher expenses for sending employees overseas. In 2023, ECA International, a specialist in international mobility, published its report on corporate international mobility.
The United Kingdom was ranked the most expensive destination for companies looking to expatriate their employees for the second consecutive year. The cost of sending an employee to the UK was £351,992 (including salaries and benefits), an 11% rise (+£33,887) from the previous year, when the UK was already the most expensive destination globally. This rise is attributed to a surge in living costs, while British salaries only increased by 5%. Salaries account for only 18% of international mobility costs, with the remainder covered by benefits such as housing assistance and school fees for children attending international schools.
What does the year 2024 hold for expats in London?
The Mercer Cost of Living report 2024 ranks London as the 8th most expensive city worldwide for foreign professionals. However, international mobility costs remain high there, as well as in other major expatriate cities. Hong Kong and Singapore are the most expensive cities for expats, followed by Zurich, Geneva, Basel, Bern, and New York. Nassau (Bahamas) is ninth, with Los Angeles completing the top ten.
How are employers coping with rising living costs?
Hong Kong and Singapore remain the world's most expensive cities for the second year in a row. Like in the UK, soaring rent prices largely explain the increase in living costs.
The real estate crisis in Hong Kong
In Hong Kong, the average construction cost rose by 4.8% to $4,500/m², closing in on New York ($5,723/m²), San Francisco ($5,489/m²), and Zurich ($5,035/m²), where construction costs have hit record highs. Hong Kong faces not only a skills shortage in construction but also rising interest rates. In Q1 2024, apartment prices dropped by about 16% year-over-year, but residents haven't benefited due to declining demand. The year 2023 was marked by a 4.5% drop in real estate transactions year-over-year. While Hong Kong aims to regain its status as the world's leading financial hub, it struggles to attract businesses concerned about China's growing influence and rising living costs.
Experts believe the 10% estimated drop in real estate prices this year (20% since 2021) won't benefit foreign businesses, as it occurs amid declining foreign investments. Debt-ridden property developers are losing support from banks and investors. However, Hong Kong's situation hasn't reached the critical levels of China's real estate crisis, and wealthy expatriates are actually investing in Hong Kong's falling real estate market.
Rising rents in the United Kingdom
In 2023, the UK experienced an unprecedented housing crisis, with property prices rising by around 10%. At the start of 2023, the average home price nearly hit £300,000, while average British salaries were £27,750. The pandemic accelerated the housing market disruption, increasing pressure on companies wanting to expatriate employees, especially in London, where rents jumped 16%. However, many businesses are still keen on sending employees to the capital.
The government remains optimistic, highlighting strong foreign investment figures, proof of renewed business confidence. Despite navigating Brexit's initial turmoil, the City of London regained its status as Europe's leading financial center. However, international companies still note a significant difference between capital investment and the transfer of employees to the UK.
How rising living costs affect international mobility plans
In 2024, rising living costs, particularly rent, are hindering foreign companies' international mobility plans. They also closely monitor currency fluctuations. The pound's volatility has significantly impacted expatriation costs in the UK. In Japan, previously the most expensive expat destination, the yen's depreciation is a boon. In 2023, the cost of sending an employee to Japan fell just below £300,000.
However, companies remain cautious. Unlike tourists, who enjoy tax-free souvenirs during brief visits to major tourist cities, foreign workers live there for extended periods, sometimes years. Currency fluctuations (e.g., the yen's decline against the dollar, euro, and pound) can, therefore, limit companies' international mobility plans.
To address rising costs, some companies are shifting from expatriation to remote work. They partner with local firms to "virtually" relocate workers. Others are establishing "virtual branches" in major cities, where physical offices are replaced by online networks. This means that employees stay in their home countries while working remotely with international colleagues. This digital form of international mobility will likely grow in influence in the coming years.
Cost of living: What are the employers' responsibilities?
When sending employees overseas, employers remain responsible for the employee's safety and health, usually through insurance covering expatriate needs. While the employee is no longer affiliated with the host country's social security and health system, the employer must still offer a medical check-up before the move and ensure all required vaccinations are completed. Moreover, employers may modify, shorten, or cancel expatriation if an employee's medical treatment continuation is compromised abroad.
What can expats negotiate with their employers?
The expatriation contract negotiated between employer and employee outlines the expatriate's benefits: moving assistance, housing aid, financial compensation based on the host city, car or transportation assistance, phone subscription, school fees, training/retraining aid for the trailing spouse, childcare, etc.
The employee can add clauses deemed relevant based on their situation. For example, they might request help with their children's schooling if they move with their families. Housing is the most significant expense. Many major expat cities are facing housing crises, which are driving up costs for businesses. This crisis extends to other life areas (food, fuel, schooling, transportation, insurance, etc.), forcing companies to increase financial compensation for expatriates. Repeated crises have significantly impacted expatriation packages.
Today, employees can negotiate an expatriation bonus (5-20% of base salary), which is discretionary and not mandatory.
