Hong Kong is the most expensive location in the world to rent a high-end three bedroom apartment, according to the latest accommodation data from ECA International.
Despite a 2-3% correction since this time last year, rents for an unfurnished three-bedroom apartment in a sought-after area of the city remain high, averaging US$11,550 per month.
Hong Kong is followed by Caracas in Venezuela, where a lack of suitable properties and high demand driven by a booming petroleum industry led to rents continuing to rise dramatically. New York, Moscow and Tokyo complete the list of the top five most expensive locations in the world to rent a three-bedroom apartment.
Globally, rental prices for a three-bedroom apartment have fallen slightly from last year's US$3,080/month average to US$3,030. With many of the world's major financial markets uneasy, particularly regarding the Eurozone, many rental markets have stagnated somewhat.
"In many of the locations that are attracting increasing numbers of expatriates, such as Caracas or Mumbai, strong demand and a limited supply of suitable rental properties are pushing up rents for high-end property – in some cases quite dramatically," said Lee Quane, regional director, Asia, ECA International. "In other locations such as Hong Kong, demand has been considerable for some time, due to limited land or a burgeoning middle class, and rental prices have more or less remained at the same high levels as this time last year."
Within Asia, the most expensive high-end rental property after Hong Kong is found in Tokyo (5th globally) followed by Singapore (8th), Shanghai (11th) and Seoul (14th). Karachi, Pakistan has the continent's lowest rents in the segment.
The average cost for Asia for three bedroom rental accommodation is US$3640 per month – 20% higher than the global average of US$3,030 per month.
"Asian locations dominate the list of the top 20 most expensive locations for rental property," said Quane.
"With more and more companies setting up operations in the region the need for the type of housing appropriate for international assignees has increased. Yet with an already limited supply of such properties in many countries here, demand significantly exceeds supply, putting upward pressure on rents."
Despite having the second highest rents in Asia, Tokyo rents are 5% lower than a year ago. Falling demand as many international companies scale back their operations in Japan to reduce costs has lowered the pressure on availability and thereby rental prices.
Rental increases have remained modest in Singapore. However it has maintained its ranking as the location with the third highest rents in Asia after Hong Kong and Tokyo. Rents for an unfurnished three-bedroom apartment in Singapore average US$5,510 per month, 50% higher than the regional average.
The biggest rental price increases in the region have been in mainland China, where demand for high-end accommodation is growing as companies expand their operations in the country.
While a series of measures have been introduced by the Chinese government to try and curb speculation on the sales market, rents continue to increase across the country.
The increase has been most pronounced in Beijing, ranked 19th globally (up from 26th last year) following a year-on-year increase of over 12%.
Rents in India have also increased significantly as more companies establish themselves there. Bangalore provides another example of a location that has seen an average increase of more than 12% since the same time last year.
In Mumbai, rents have gone up 7% on average over the year (from a higher base) as demand from the growing number of expatriates for high-end property continues to exceed supply, putting upward pressure on prices.
"Expatriates often gravitate towards particular areas of cities because of the location of international schools, embassies or social focal points. These tend to be the more expensive, prestigious areas in a city," said Quane. "For many companies sending employees on international assignment, financing accommodation can be one of the most significant assignment costs incurred, so companies looking to control costs should consider the issue holistically, taking into account not only the standard of the accommodation they provide, but also its size and location."
Impact of exchange rates
Currency fluctuations can also have an impact on the cost of providing an accommodation allowance to an international assignee and companies need to factor this in when designing their accommodation package.
India is a striking example: the weakening of the Indian Rupee against major currencies over the past year has meant that, while Bangalore rents have increased 12% in local currency terms, they have actually fallen by over 7% in US dollar terms. Similarly, Mumbai rents have fallen by almost 12% when converted to US dollars. This is the reason for the city's fall from 13th to 17th place in ECA's US dollar-denominated global ranking.
Likewise Singapore, Seoul (14th), Taipei (46th globally), and Kuala Lumpur (97th) have all seen rental increases in local currency but falls in US dollar terms.
In contrast, Hong Kong's peg to the US dollar means that it makes little difference whether market movements are measured in US or Hong Kong dollars.