According to global real estate brokerage, Savills' Plc, New York City ranked only second to Tokyo in terms of “above-gilts” yield when comparing this measure across the top 10 global cities. Behind New York City, was Paris and then London. “To understand the true appeal of residential as an asset class in each city”, Savills' analysis compared the “above-gilts” yields (gross rental yield less 10-year treasury bond yield for the respective country) for each of the 10 global cities. Savills' believes the above-gilts yield measure “sheds light not only on where income investors might put their money but also on how out of synch with underlying occupier demand a city’s residential values might be.”
More importantly, Savills' predicts that Manhattan real estate prices will surge 30% in the next three years. “New York has the potential for over 60 per cent capital growth if average yields were to move in to the same extent as London yields have. This assumes that rents stay stable and interest rates don’t rise.” Savills, however, believes it is more realistic to look for 30 per cent growth in average New York residential capital values during the next three years.
Yolanda Barnes, director of residential research at Savills reconfirmed NYC real estate as a “buy” for investors seeking yield and capital appreciation. In a statement, Barnes said “We tipped New York as a ‘buy’ last autumn, and the city’s residential real estate continues to appear a sound investment both for income and capital growth potential”.
In contrast, low-yielding cities, where house prices are not underpinned by rental income, could be overvalued. She warned that cities in the “new world”, most notably, Moscow and Mumbai, look overvalued. She also implies that Singapore, Hong Kong, Shanghai and Sydney all look like they are overvalued as well, as their prices are not underpinned by rental income.
Here is the full report: http://pdf.euro.savills.co.uk/uk/residential---other/insights---worldclasscities.pdf