Sluggish economic growth keeping rental costs down for expats

by Ray Clancy on August 11, 2016

Subdued global economic growth is keeping the cost of renting a home down for expats in many city locations around the world, but some are facing higher housing costs, new research shows.

In the majority of the locations covered by the ECA International survey, rent has been fairly static in the last year. The report suggests that 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.

Calgary-AlbertaHowever, more markets are showing rental increases of 5% or more than those showing reductions of a similar scale and the main cause behind these rises is the supply of suitable properties failing to keep up with increasing demand.

The survey has found that cities with fast growing business hubs rather than traditional locations have seen rent rises, for Birmingham and Leeds in the UK and Chicago and Miami in the United States, with rents growing significantly faster than those in London and New York.

Perhaps some of the more surprising locations suffering from limited availability are South Africa and Ireland. Demand for expat accommodation has continued to steadily increase in South Africa over the past few years.

The report says that 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.

Other locations have been affected by falls in oil and gas prices where firms have cut their workforces and landlords had to lower their price to attract new tenants. Calgary, Port of Spain, Caracas, Riyadh, Stavanger, Aberdeen, Perth and Luanda are some of the locations worst hit by the slumping oil prices.

Calgary has seen rent prices fall by 19.2% year on year, Port of Spain by 11.5%, Perth by 6.8% and Aberdeen by 7.2%. And in Russia the fall in the oil market has affected rental prices, which have fallen by 14.1% in Moscow and by 5.4% in St Petersburg.

The report also points out that 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,’ it points out.

‘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,’ it adds.

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