The continuing uncertainty in the Eurozone, coupled with the latest round of quantitative easing and loosening of monetary policy in the United States, Japan and United Kingdom, continues to drive bond yields to record lows. Many expect inflation to pick up following ongoing intervention by central banks. In this scenario, where should investors put their money? An option for investors is to buy real estate – for two reasons. First, its rental income stream provides a yield in excess of that on bonds. Second, it provides the potential for the rental income stream to rise should inflationary expectations take hold.

Residential property provides an attractive real estate category for investors. The value of residential property dwarfs the commercial property markets—often four to five times the size, depending on the city. Residential property is composed of smaller lot sizes, creating a bigger and more liquid market for investors to operate. The downside is often the cost of managing the property to maximize returns, which can potentially be higher for the residential market. The other issue with residential property markets is that they can be more prone to market psychology, wherein buyers expect prices to carry on rising indefinitely until the crash comes.

Other factors that affect residential markets are the availability of credit, and the degree of government intervention, particularly in Asia. Essentially, this is a situation in which who you are and what passport you carry define and determine your investment options within a particular market or sub-market. In turn, this makes it difficult to draw conclusions on which cities present the most compelling opportunities. Buying in a city that has historically not imposed restrictions on foreign ownership within the residential market does not guarantee that this will not happen in the future. Singapore has long restricted certain categories of ownership The effects of inflation on ten key residential markets—a guide for buyers Real Residential Property Prices of landed property, and has frequently introduced additional taxes on buyers and sellers of housing units to try to cool the market. In recent months, Hong Kong has introduced similar measures and has announced that the new apartments being built on the old Kai Tak airport site would have restrictions on them, reserving them for Hong Kong’s permanent residents.

So the next question is, if not where, then when to enter the market? Since the global financial crisis, when house prices in many global cities rose quite steeply between 2004 and 2008, the outlook across cities has been somewhat mixed. A recent report from the OECD highlights that house prices were continuing to fall in about half the countries surveyed toward the end of last year and conversely rising in the other half including China, India, Indonesia and Hong Kong. Meanwhile, other countries showed only slight falls of less than 5% such as the United States and United Kingdom.

For residential investment, location is particularly crucial. While the United Kingdom overall might have fallen by 5% at the end of 2011, London tells a very different story. As a global city, London attracted a great deal of money from overseas investors, looking for a safe haven away from the economic uncertainty.

Setting aside our previous discussion about the inability to generalize about where one should buy, it is worth looking at what real house prices have done over the past decade.

Here, we have looked at real house prices in ten cities that high-net-worth (HNW) investors may want to look at buying in. We have selected five cities that might appeal as landlord and tenant investment buys, namely London, New York, Hong Kong, Singapore and Tokyo. We have also looked at five cities—Bangkok, Jakarta, Macau, Mumbai and Shanghai—where Asian investors may want to have a holiday apartment as a lifestyle choice. We have looked at real house price movements—removing the effects of inflation—measured as consumer price inflation (CPI) by national governments. In turn, this allows for a comparison between cities in countries with differing inflation rates.

Buy To Let Cities

For the five investment buy-to-let cities, in real terms from 2000 to 2012, house prices have appreciated by 170% in Hong Kong. That compares to just 26% in Singapore over the same period. Whilst future growth is always a balance of supply and demand, plus the availability of credit, it is worth looking at historical movements in order to make comparisons to see which city might have more potential upside.

Lifestyle Cities

Of the five additional cities we have featured, the gap between nominal and real residential prices are greater as inflation is higher.

Based on these cities, Jakarta and Bangkok probably has the most upside to gain in real terms relative to other markets. Shanghai has seen price rises in real terms, similar to what happened in Hong Kong. In the last year, in both nominal and real terms, price rises have slowed (See chart in Shanghai report).

What You Can Buy

On the subsequent pages for each city, we provide data on the nominal and real house price movements over time, as well as an outlook for each of the markets. We have made suggestions on what you can buy, with a wide range of ideas on how to gain exposure to the residential markets. From historic apartments in London, to whole multi-family apartment blocks in New York, or new residential development sites in Tokyo, Jones Lang LaSalle residential and research teams are here to help.