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Which countries have the highest rental income returns (yields)

Answering this is an essential part of any residential property investment decision because high rental yields are not only desirable in themselves - they are also important indicators of future property price trends.

Where rental yields are high, the likelihood is that the city will attract more buyers, and that prices will rise. The wise investor will bear rental yields data strongly in mind.

The savvy investor will want to look at:

• The dwelling's cost, typically expressed per square metre or square foot. We give these prices, based on our own research, for every investible country where we can gather data.
• The dwelling's potential gross rental income. Again, these rental income estimates are typically expressed per square metre or square foot, and given for every data-friendly investible country.
• The dwelling's gross rental yield. A key number for the investor, this is the return-on-investment (ROI) number. Gross Rental Yields = (annual rent/ house price) * 100. Note that our figures are gross. No deduction is made for any costs or expenses, taxes, or anything else.

Data gathering method, sources

The Global Property Guide's valuation data is based on upper-end apartments in prestigious areas, such as appeal to foreign renters. We draw our figures from our own, in-house analysis of web advertisements, based on offers for sale, and offers for rent, of good (but not new) apartments.

We begin by defining key upper-end rental districts in the capital city, taking care to keep a database of where the properties are located, so as to ensure some measure of consistency in subsequent years. We carefully select appropriate price ranges. We take average prices, rejecting deviant outliers.

When an apartment is sold, the seller is arguably less likely to decorate it to perfect condition, than when renting. So the renting and selling categories may not be precisely comparable. But since we use the same method in all countries, the comparisons across countries should be valid.

An example of our sq. m, rentals and yields data: Kiev, Ukraine

We are interested in the sort of properties which will be attractive to foreign renters. This is not always the same type of property in all locations. In Moscow for instance, pre-revolutionary apartments are in demand by foreigners. We have a separate category for these properties, as opposed to newly built apartments.

More usually, we aggregate data for the different types of property. Foreign renters are usually interested in properties which are in excellent condition, with good facilities, and which have been refurbished or redecorated within the last five years. Our properties are therefore likely to be less expensive than the very newest properties, except where new-builds dominate the market. In European cities, we lean towards properties in the historic city centres, therefore our 'typical' property is more likely to be a 90-year old refurbished apartment of character, than a newly built apartment.

Rental yields FAQS

Comparing rental yields: Europe

If rental yields are high, does it mean that it is a good investment option and I should invest immediately?

Well… no. We present gross yields and not net yields. From the gross yields, you still have to deduct taxes, maintenance fees and other costs. You should also compare the gross yields with current bank interest rates, inflation rate and the risks you are taking in investing.

The rental returns on owning property in different countries varies greatly. For instance in Europe, in early 2007, the range was from around 14.13% in Moldova's capital Chisinau, to 2.43% in Monaco. The trend had been for rental income returns to fall, because rents are not keeping pace with prices anywhere in Europe. As 2007 dawns, rental returns are lower in most locations than they have been for 20 or more years.

To some extent rental returns appear to correlate with risk. Most of Europe's 'high yielding' countries are in the East. Apartments in four Eastern European capitals earn above 10% rental returns: Chisinau, Moldova (14.13%); Warsaw, Poland (13.28%); Sofia, Bulgaria (10.56%); and Bratislava, Slovakia (10.06%). The higher risks of the East may be a factor in these returns (high corruption, political risks).

How about places with seasonal rents?

In some markets such as the Caribbean and the Pacific, most rents are seasonal. When the developed world is experiencing harsh winters, its wealthier citizens escape to sandy white beaches in the tropics. This leads to unexceptionally high demand during peak seasons and virtually zero occupancy during lean seasons.

For these places, we are moving away entirely from using seasonal rentals, as we find the results unreliable. For this and other reasons, the countries for which we have price data don't always overlap with rental income data countries.

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