Rents for luxury homes across the world’s major cities have steadily increased over the past year as prices have slowed.
New York topped the league of world cities returning the highest rental yield for landlords – at an average 6.9%, but languished in sixth place for capital growth.
Shanghai was at the bottom of the pile with a yield of 2.4%.
Average growth across the world cities’ rental index from international property consultants Savills averaged 4.1% in the year to June 2012, compared to 2.1% capital value growth putting average yields at 4.4%.
Global property hot and cold spots
The cities looked at by Savills were:
|
Gross Yield 06/12 |
Rent change 01/12 – 06/12 |
Rent change 06/11 – 12/11 |
Rent change since 06/05 |
|
| New York |
6.9% |
1.8% |
6.2% |
12.7% |
| Moscow |
5.6% |
5.4% |
3.7% |
56.0% |
| London |
5.0% |
1.7% |
0.1% |
14.7% |
| Sydney |
4.9% |
3.3% |
3.4% |
27.9% |
| Paris |
4.8% |
0.0% |
4.9% |
26.2% |
| Tokyo |
4.1% |
0.0% |
-1.1% |
-12.1% |
| Singapore |
4.1% |
-1.0% |
4.2% |
88.7% |
| Mumbai |
3.3% |
5.0% |
0.0% |
77.8% |
| Hong Kong |
2.9% |
-0.1% |
-2.5% |
24.5% |
| Shanghai |
2.4% |
1.9% |
2.2% |
10.3% |
“The top world cities are continuing to attract people to live and work and, even if investor and owner-occupier appetite falters for a period, incomers will still need accommodation and will continue to become tenants,” says Yolande Barnes, director of Savills Global Research.
“The fundamentals of demand for accommodation remain strong and the outlook for the rental market is positive across the index.”
“New York’s market illustrates the permanent tension between rents and capital values. There comes a point when high yields become a compelling buy signal. New York seems at or close to that tipping point.”
Speculation not wealth creation
“By contrast, capital value growth cannot outpace underlying rental demand forever, and rents eventually catch up as incomers flood into the high demand world cities. In Mumbai and Shanghai, landlords are looking to push up rents as capital value growth falters, driven by an inevitable investor desire to boost income returns after a sustained period where capital growth has hugely outpaced rental growth.”
This trend has improved Shanghai’s investment credentials, explains Barnes, but a huge gap exists between rental and capital growth since the start of 2005.
Rents have increased by an average 10.3%, while property prices have soared by 137.3% due to speculation rather than income creation. This is the most extreme polarisation of rents and values in any world city market, she argues.
