Tel Aviv, Israel's economic and cultural powerhouse, is used to reveling in glowing international recognition. But a new survey ranking it as the most expensive city in the Middle East for expats and overseas firms might tarnish some of that municipal shine.

In the latest annual survey by Mercer, an international consulting firm , Tel Aviv ranked 31st globally, and came in well ahead of other regional cities such as Beirut and Abu Dhabi for overall cost of living.

"Mercer's international basket of goods and services is composed of over 200 items including housing, transport, food, clothing, household goods and entertainment," Mercer spokesperson Nathalie Constantin-Metral told Xinhua on Monday.

"We compare the cost of international brands whenever available for comparability purposes," she said.

"In Tel Aviv, the cost of such goods and services basket is higher than in New York - our base city for the rankings. The cost for expatriate housing is also an expensive element that maintains Tel Aviv as the most expensive city in the Middle East," she added.

HOME FOR HOLIDAYS - ONLY?

The popularity of living in Tel Aviv isn't matched by the number of housing units available. As well, its relatively small urban footprint provides limited expansion options for new construction.

An additional problem is that many of apartments in the newly built residential towers are owned by foreigners who only use them for brief periods of the year - usually during the major Jewish holidays - hence keeping them off the market.

However, in answer to major social protests, the government in March voted to increase taxes on this type of apartment in hopes that it would convince more owners to rent them out.

EXPENSIVE FOOD FOR THOUGHT

A recent Israeli study found that people in Israel paid 10 to 20 percent more for their food items compared to other countries in the Organization for Economic Co-operation and Development ( OECD), which includes the world's most advanced economies. The report cited the price difference as being a result of market domination by a relatively few players.

Local economic observers have long pointed to cartelization and interlocking ownership of strategic industries by a handful of wealthy families as a major reason for high prices for food and housing.

The U.S. dollar and New York City serve as Mercer's international baseline for comparison. Hence, the relative strength a nation's currency against the U.S. dollar from March 2011 to March 2012, and the price movements in New York over the same period are important factors in determining a city's global ranking.

So in the case of Tel Aviv where the Israeli shekel in June reached a three year high against the dollar, the exchange rate of approximately 4-1 has had a major impact on the city's ranking.

However, Constantin-Metral said that ranking a city as a pricey place to set down roots or offices didn't necessarily play a decisive role in most companies' decision in choosing where to set up operations, citing business needs as a chief motivation, rather than the cost of living. She also noted that the cost of living issue represents only one element of a comprehensive expat package.

MARGINAL EFFECT

Prof. Dan Peled, of the University of Haifa, said that he hasn' t experienced the high costs of living for expatiates to be major issue for Israeli companies or universities trying to attract foreign experts.

"We do have some issues with respect to salaries, which might be low compared to what experts can get in other western countries. And of course security issues places high on candidates considerations, but not costs of living as far as I'm concerned," Peled said.

He added the high costs of living isn't a deterring factor for foreign companies that are establish themselves in Israel and to send some of their own staff.

"The reason has to do with the fact the employers can to a large extent cover some of the costs of living expenses for their employees and claim these expenses as deductable expenses," Peled said.

"So it's cheaper for the employer to pay for residence rental and then claim these expenses as deductions," he added.

REGIONAL OPTIONS

Prof. Moshe Justman, of the Ben-Gurion University of the Negev, said that he also thinks the ranking wouldn't make Tel Aviv less attractive for expats.

"People don't compare Tel Aviv to other Middle Eastern capitals - it's more compared to European in terms of the amenities and quality of life," Justman said.

Justman said that the same reason is true when companies look at the costs of sending their staff abroad.

"The choice isn't between Tel Aviv and Beirut, so if they want to come to Tel Aviv they will compare it to European cities but not to Middle Eastern cities," he said.

In such a comparison Tel Aviv with raking at 31 globally came in well being, while Zurich is at number five, London at 18 and Copenhagen at 21. However it still ranked ahead of New York at 33, Paris at 37 and Milan at 38.