Last updated July 31st, 2022.
Investors usually buy property for two reasons: rental yields and capital appreciation.
Rental income and appreciation are both equally important. After all, cash flow doesn’t help much if you have a depreciating asset.
Likewise, real estate is illiquid by nature. Cash flow lets you profit from your investment property without selling it.
In practice, capital appreciation prospects are harder to predict beforehand than rental yields though.
Market analysis and otherwise doing your research can help take some of the guesswork out whether your asset will appreciate in value or not. But nobody is a psychic or knows exactly where real estate prices will head.
On the other hand, estimating yields is a lot easier. You just need to look at similar properties in the same neighborhood, see what price they’re rented for, and make a comp.
Here are the top four cities in Asia with the highest rental yields. Keep in mind that we are only looking at large, capital cities. There’s no reason to fill up the list with smaller towns like Battambang, Cambodia and Taunggyi, Myanmar.
Thailand’s capital of Bangkok has Asia’s fourth highest rental yields. You can expect moderate returns of around 5% in most parts of the city like Sukhumvit, Silom, and Ratchathewi.
Like all other places on this list, smaller one-bedroom apartments enjoy better yields compared to larger units in Bangkok. However, the city faces an oversupply of one-bedroom condos right now – especially in the suburbs.
You might find it more practical to buy two or three-bedroom condos in Bangkok despite their slightly lower yields. Renting these units out is much easier.
Thailand also ranks as one of the weakest economies in Southeast Asia. Its GDP growth rate – about 3% over the years – still outperforms most western nations. Yet it remains very unimpressive by emerging market standards.
Buying a condo in central Bangkok costs about US$6,000 per square meter on average. Real estate prices drop below US$3,000 if you’re buying in a suburb like Bang Na or Phaholyothin though.
Rental yields aren’t everything. Large, expensive condos in some parts of Bangkok’s city center have tripled over the past decade. Meanwhile, the price of smaller, high-yield units in the suburbs were generally flat.
The Philippines is third on our list. Rental yields in Manila hover around the 6%-7% range in some parts of the metro area.
Not only that, but the Philippines is among Southeast Asia’s fastest growing economy too. GDP typically increases by above 6% during a normal year, outpacing practically all of its neighbors.
Furthermore, the Philippines has the strongest population growth in the region. Its current population of 103 million will rise to over 140 million over just the next 30 years.
Population growth in the Philippines should drive future demand for real estate in prime areas and in turn, lead toward healthy appreciation over the long-term.
The bad news? Much of the Philippines’ future demographic potential is already priced into the market.
Costing about US$4,000 per square meter, a condo in Manila is about as expensive buying in Kuala Lumpur, Malaysia. This is despite the fact that Malaysia is far more developed than the Philippines.
Asia’s second highest rental yields are in Phnom Penh, Cambodia. Yields commonly exceed 8% annually here.
You might have visions of Pol Pot and genocide when “Cambodia” is mentioned. But over two decades later, the nation is arguably the most forward-thinking and pro-business frontier market in the region.
Cambodia’s economic growth is equally impressive as their rental yields. Like many other frontier markets, Cambodia’s record of avoiding recessions is strong. 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 growth prospects compared to just about anywhere else in Asia.
Why? It’s because Cambodia’s largest city is one of very few in the world (and certainly the only Southeast Asian capital) where you can purchase prime, central real estate for below US$1,000 per square meter. Prices in Phnom Penh have few places left to go except upwards.
Rental returns in Jakarta, Indonesia often exceeds 8% per year. As such, Jakarta tops our list and boasts the highest yields in Asia.
There’s one big problem though: making profit from Indonesia’s real estate market is difficult since 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 stands: do you really want to “invest” money in a depreciating asset that you don’t even truly own?
With that said, Indonesia is gradually becoming more open to foreign investors. Rules will likely change at some point in the not-so-distant future. And the government is already taking steps in the right direction.
That concludes our list of which cities have the highest rental yields in Asia.
Consider investing in these four high-growth rental markets if you seek steady income, allocation to global real estate, and of course, strong yields.
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