I did a rudimentary scoring world class cities...
The factors I inputted are:
1. Price to income (the lower the better),
2. GDP growth per capital (higher the
better)
3. Property rights index (taken from Global Prop
Guide, higher better).
4. I filter out by population. Cities that a less
than 1m I avoid due to developers easily overbuilding.
5. Taxes (including capital gains, stamp duty,
rental income tax). lower better.
6. Supply over demand. Lower better. I cross
check population growth of city vs housing starts.
The lower the score the better.
Bottom Line:
Cities in the OECD dominate. This is probably due
to the aftermath of the Global Financial Crisis, which brought prices down.
American cities like Houston Texas, Phoenix
Arizona, Dallas Texas, LA, NYC and Chicago are BUYS. Although the US has one of
the highest property related taxes, they have the highest gross yields, and
lowest price to income ratio, hence greatest affordability. You can buy a nice
single-family home in Phoenix for as little as USD300k. A condo in Chicago
downtown sells for around USD250 - 350 PSF, almost below construction costs.
But we have to be careful that some cities, e.g. Houston may have oversupply
looming. Others, like NYC are in acute shortage. Invest in cities where the
population is growing.
Australian / NZ cities are not in a bubble.
Melbourne, Sydney, Perth, Brisbane and Auckland are attractive
destinations. The taxes are lower compared to the US. Affordability is good.
Rental yields are however, not much higher than borrowing costs.
In the UK, London an Birmingham are considered
BUY. London is probably the most expensive in terms of price to income, and
have the lowest yield. But there is acute shortage as the population is growing
much faster than they can build. The urban sprawl in London is hitting its
limit so the inner city prices will boom. Taxes in the UK is far lower than in
the US, although the Capital Gains Tax for non residents to be implemented
after April 2014 has taken some shine off.
In Asia, the best places to invest are Tokyo and
surprise surprise, Penang! Penang is still relatively affordable compared to
Iskandar or KL. There is also a shortage in Penang as its population is boosted
by people making it a retirement home and expats migrating there. Tokyo is one
of the largest metro in the world with a population of over 20m. There is
naturally a shortage of housing but one must take into account the earthquake
risk and language barriers.
On the SELL list, most Asian cities dominate:
Singapore is hampered by high price to income, low yields and looming
oversupply. Bangkok, Manila and JB form the tail end of the list of AVOIDS.
Bangkok's condo take up rate is less than 60%! I see a repeat of the Asian
Crisis due to its construction boom. I've been writing many negative posts on
Iskandar for some time and I can tell you that it will NOT be a lifestyle
choice for many to live there. It will however be a successful industrial site
for Singapore's manufacturing sector.
|
City
|
Price To Income Ratio
|
Gross Rental Yield City Centre
|
Score
|
Action
|
|
6.94
|
5.75
|
1.893262985
|
BUY
|
|
|
1.5
|
18.62
|
2.080122411
|
BUY
|
|
|
5
|
8.87
|
2.136730456
|
BUY
|
|
|
8.86
|
5.02
|
2.175446652
|
BUY
|
|
|
1.72
|
13.06
|
2.505074016
|
BUY
|
|
|
2.51
|
13.67
|
2.522389608
|
BUY
|
|
|
9.21
|
4.52
|
2.699370446
|
BUY
|
|
|
4.21
|
11.53
|
2.885278078
|
BUY
|
|
|
6.09
|
6.71
|
2.916747662
|
BUY
|
|
|
4.42
|
4.79
|
3.068051487
|
BUY
|
|
|
2.97
|
9.82
|
3.765940921
|
BUY
|
|
|
5.46
|
7.06
|
3.976238624
|
BUY
|
|
|
2.82
|
11.62
|
4.030457324
|
BUY
|
|
|
3.3
|
11.15
|
4.516080859
|
BUY
|
|
|
8.71
|
7.02
|
5.138380716
|
BUY
|
|
|
7.64
|
4.56
|
5.344684684
|
BUY
|
|
|
15.75
|
4.02
|
5.404768601
|
BUY
|
|
|
2.78
|
14.06
|
5.654533846
|
BUY
|
|
|
21.53
|
3.86
|
9.554407708
|
|
|
|
9.52
|
4.9
|
9.728973184
|
|
|
|
8.61
|
5.25
|
11.06249913
|
|
|
|
1.31
|
17.09
|
11.88625103
|
||
|
6.92
|
4.61
|
17.5494674
|
SELL
|
|
|
14.22
|
9.21
|
27.69417912
|
SELL
|
|
|
12.27
|
2.26
|
28.52298259
|
SELL
|
|
|
22.5
|
4.98
|
29.49754793
|
SELL
|
|
|
26.67
|
5.45
|
51.93408315
|
SELL
|
|
|
20.19
|
2.43
|
59.9526902
|
SELL
|
|
|
27.39
|
1.87
|
64.12406781
|
SELL
|
Nice analysis!
ReplyDeleteTheirs lots of places in the world where real estate is overpriced london another great example new york city. smaller citiesand towns are usually where the better values are. I love salt lake city utah thats a beautiful place.
ReplyDeleteHi, thanks for your comments. I agree that smaller cities are less overvalued. However, my theory is unless population is booming, prices tend to stay low for a long time. Smaller cities tend to have smaller population growth because there are less employment opportunities. Even if population is booming, developers could easily boost supply by building away from the city, resulting in urban sprawl. In larger metropolis, like New York, Shanghai, Singapore, Hong Kong, London, those that live in the city centre will experience the greatest house price appreciation because there is hardly any new supply and the centre is usually already the most dense. building further away in the surburbs usually means 20 to 40 km away from work and the commute will be time consuming.
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