Last updated September 25th, 2018.
Investors usually buy property for two reasons: rental yields and capital appreciation.
Rental income and appreciation are both very important. After all, cash flow doesn’t help much if you have a depreciating asset. Likewise, real estate is illiquid and you should profit without selling it.
Potential for capital appreciation is hard to determine before buying a property though. Market analysis can help you take some of the guesswork out of things, but no one can predict the future.
On the other hand, estimating yields is much easier. You just need to look at similar properties on the market and see what they’re rented for.
Here’s the top four cities in Asia with the highest rental yields. Keep in mind that we’re only looking at capital cities. We don’t want to fill up the list with places like Battambang, Cambodia and Taunggyi, Myanmar.
Thailand’s capital of Bangkok has Asia’s fourth highest rental yields. You can expect moderate returns of about 5% in most parts of the city like Sukhumvit and Silom.
Like all other places on this list, smaller one-bedroom apartments have higher yields than larger units. However, Bangkok now faces a supply glut of one-bedroom condos
You might find it more practical to buy two or three-bedroom apartments despite slightly lower yields. Renting them out is much easier.
Thailand is also one of the weakest economies in Southeast Asia at the moment. Its growth rate of 4% is better than last year and outperforms most western nations. Yet that remains unimpressive by emerging market standards.
The Philippines’ capital of Manila ranks third on our list. Yields hover around the 6%-7% range in some parts of the metro area.
Not only that, but the Philippines is Southeast Asia’s fastest growing economy. Its GDP rose by 6.9% last year which outpaced all its neighbors.
Furthermore, they boast the strongest population growth in the region too. Their current population of 103 million will rise to over 140 million in the next 30 years.
Population growth in the Philippines should drive demand for prime real estate and lead to healthy appreciation over the long-term.
The bad news is that much of the Philippines’ future potential is already priced into the market. For example, purchasing a condo in Manila costs about as much as buying in Kuala Lumpur, Malaysia. That’s despite the fact that Malaysia is far more developed.
2. Phnom Penh
Phnom Penh, Cambodia has the second highest rental yields in Asia. It’s common for them to exceed 8% annually.
You might have visions of Pol Pot and genocide when “Cambodia” is mentioned. But over two decades later, the country is now one of the most pro-business and forward-thinking places in the region.
Cambodia’s economic growth is just as impressive as their rental yields. Like many frontier markets in Asia, the nation has a strong track record of avoiding recessions. They haven’t suffered an economic downturn in over two decades, in fact.
Predicting capital appreciation is hard. But we think Phnom Penh’s property market has better odds than most.
Cambodia’s largest city is one of few in the world (and certainly the only Asian capital) where you can buy prime real estate for under US$1,000 per square meter.
Rental property in Jakarta, Indonesia often returns close to 9% per year. As such, Jakarta tops our list and has the highest yields in Asia.
There’s one big problem though. Taking advantage of Indonesia’s strong potential is hard because foreigners cannot own property in their own name. As a non-local, the best you can get is a 70-year leasehold title.
70 years is a long time. Yet the question still remains: do you really want to spend money on a depreciating asset which you don’t actually own?
With that said, Indonesia is gradually becoming more open to foreign investment. Rules will likely change at some point in the future and the government is already taking steps in the right direction.
That’s our list of cities with Asia’s highest rental yields. Consider investing in these four high-growth rental markets if you want steady income and global real estate allocation.
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