World's Priciest Cities To Own A Home

It was reported recently, in Globalpropertyguide.com the top 10 cities to own a home. The report is based on apartments in the city-centre, with about 120sqm built-in area. This list was compute out of a total of 110 cities around the world.


Most Costly Cities
1. Monte Carlo, Monaco - average prices of $4,420 psf
2. Moscow, Russia - average prices of $1,937 psf (rental yield 4.61%)
3. London, UK - average prices of $1,928 psf (rental yield 4.12%)
4. Toyko, Japan - average prices of $1,672 psf (rental yield 4.86%)
5. Hong Kong - average prices of $1,498 psf (rental yield 3.73%)
6. New York, USA - average prices of $1,384 psf (rental yield 4.37%)
7. Paris, France - average prices of $1,126 psf (rental yield 4.26%)
8. Singapore - average prices of $901 psf (rental yield 3.97%)
9. Rome, Italy - average prices of $851 psf (rental yield 3.62%)
10. Mumbai, India - average prices of $851 psf (rental yield 4.21%)


High property price is usually associated to shortage of space.


On the opposite, the least expensive cities (it's so cheap I've to use 2 decimal points) based on the same property type above as follows:

Lease Costly Cities
1. Cairo, Egypt - average prices of $53.33 psf
2. Bangalore, India - average prices of $61.04 psf
3. Concepción, Chile - average prices of $62.15 psf

4. Quito, Ecuador - average prices of $76.18 psf
5. Chengdu, China - average prices of $92.81 psf
6. Managua, Nicaragua - average prices of $100.33 psf
7. Jakarta, Indonesia - average prices of $102.34 psf
8. Amman, Jordan - average prices of $106.84 psf
9. Lima, Peru - average prices of $107.21 psf
10. Santiago, Chile - average prices of $113.43 psf

However, high property price must be supported by high gross rental yields. Rental yield below 5% suggest that the property is overvalued. The historical average rental yield is between 5.5% to 8.0%.

Singapore is one the few countries in Asia with low rental yield. The list of top rental yields are (against property price/position) :

Highest Rental Yield
1. Chisinau, Moldova - 14.17% (100 placed, $122.26 psf)
2. Cairo, Egypt - 12.0% (112 placed, $53.33 psf)

3. Jakarta, Indonesia - 11.27% (106 placed, $102.34 psf)
4. Manila, Philippines - 10.99% (87 placed, $177.81 psf)
5. Skopje, Macedonia - 10.11% (101 placed, $121.05 psf)
6. Lima, Peru - 10.09% (104 placed, $107.21 psf)
7. Panama City, Panama - 9.98% (92 placed, $161.65 psf)
8. Amman, Jordan - 9.73% (105 placed, $106.84 psf)
9. Kuala Lumpur, Malaysia - 9.22% (99 placed, $125.14 psf)
10. Bogota, Colombia - 9.19% (98 placed, $130.25 psf)

Rental yield reflects the Returns On Investment for the landlord. Rental yield reflects if the property is over-valued or under-valued. Thus if the rental yield is low, it suggest that the property could likely be over-valued.

Before anyone jumps to conclusion that since rental yield is low for any selected country, it reflects that the property is over-valued and not worth buying, let is also look at mortgage rates.

How does Mortgage Interest Rate affect ROI? Interest is part of ownership cost. If interest rates are high, it will errode Rental Yield. Example
- Jarkata, Indonesia - Rental Yield 11.27%, Mortgage Interest Rate above 10% (heard up to 15%)
- Singapore - Rental Yield 3.97%, Mortgage Interest Rate 2.5% (SIBOR package)

Thus if the Mortgage Interest is higher than rental yield, there is barely any returns if we require loans to finance the property. All the rental yield will go towards interest payment.

The consolation is, with the recession, property price will continue to weaken. Property prices in Singapore has saw weakening since late 2008 and has continue erroding. At this rate, property price will soon be reasonably valued (not over-valued nor under-valued).

Note : All prices in US Dollars. PSF refers to Per Square Feet. SIBOR refers to Singapore Interbank Offered Rate (or Central Bank Rate).