Best Global Markets for Buy-to-Let Investment Properties

Traditionally, real estate has been one of the key assets people use to preserve and increase their funds. Moreover, in the context of globalisation and digitisation, investors are no longer limited to their local markets and have ample opportunities to select the most promising options and diversify their portfolios.

As they look for sustainable and profitable investments, they tend to prioritise buy-to-let properties. The rapid development of technologies, the growth in the global population and other demographic changes increase demand for rental flats and houses in different parts of the world.

Notwithstanding a number of difficulties attributable to the coronavirus pandemic (and in some ways thanks to them), the global rental housing sector has been growing actively since 2020. It goes without saying that this is just a general trend. The situation in the housing sector of any country has many nuances and changes over time. That is why the purchase of buy-to-let properties entails certain risks, as in the case of all other investments. At the same time, analysis of a number of indicators and trends enables us to highlight a number of countries with the best conditions and significant potential for investments in buy-to-let properties.

• Advantages of Investing in Buy-to-Let Properties
• What Factors Should You Consider When Choosing a Country?
• Countries with the Highest Rental Yield
• Some Tourist Countries
• Developed and Reliable Markets

Advantages of Investing in Buy-to-Let Properties

All over the world, real estate is considered a reliable way to protect funds from inflation. Buy-to-let properties also offer some other advantages.

• Availability of different earning strategies. Buy-to-let properties can provide stable income in the form of monthly payments, which is particularly valuable for investors looking for a passive and predictable source of profit. There are also safer options with guaranteed profitability when the owner obtains fixed payments, on agreement with the property developer or the management company, regardless of the occupancy rate of the property or the degree of its readiness. Short-term or daily lets can generate the biggest return. However, it is important to assess in advance whether the high cost of accommodation will cover periods where the property may be vacant.
• Diversity of the types of housing available and management methods. You can let almost any type of property: houses, villas, penthouses, hotel and residential flats, condominiums, flats, duplexes, bungalows, etc. In addition, all these properties can come in different categories and sizes, target business tourism, family or youth vacations, thereby offering a myriad of options. The investor can also determine the extent of his involvement in the business: to manage the facility independently, in cooperation with local companies or to transfer everything to a large international chain.
• Growth in capitalisation. In addition to rental income, liquid real estate brings a long-term benefit from the appreciation in the value of the property. With the proper management and in a growing market, investors can make a profit when reselling their properties. It is often the case (especially in the new housing segment) that rental income and capitalisation growth are interrelated. You can let a well-built property in a good location which continues growing in price.
• Good prospects. The world population is increasing, and this trend will continue for the foreseeable future. At the same time, thanks to globalisation and technological progress, people are less and less tied to a specific place of residence, the number of instances of relocation all over the world is growing. Moreover, pent-up potential demand accumulated during the coronavirus restrictions is now being released. As borders opened up after the pandemic, people began to travel actively, thereby increasing demand for short-term lets and driving an increase in profitability.
• Portfolio diversification. If you have a range of assets, you can allocate risk across different countries and markets, reducing the impact of changes on one local market on your overall investment portfolio and increasing the potential for high returns.
• Fiscal and migration benefits. Some countries offer fiscal and tax benefits for property investors, such as reduced income tax or property tax breaks. In addition, in a number of countries, the purchase of real estate makes you eligible for a residence permit, permanent residency and citizenship.
• The ability to use the real estate for your own purposes. Finally, if the investor is the fully-fledged owner of a property, the investor can use it now and then for their own interests, for example, for a holiday (sometimes such an opportunity can also be stipulated at the time of the transfer of the housing to professional management). The planning horizon in this case will be related to the terms governing the handover of the property.

What Factors Should You Consider When Choosing a Country? 

Here a great deal will depend on the type of property and the investment strategy selected by the property owner. However, the basic set of criteria look as follows:

• Strong economy. This is a key indicator of a healthy real estate market. In countries with stable economic development, housing prices tend to rise. This means that real estate is a promising investment. Furthermore, in countries with strong economies, the risks of large-scale financial crises and other negative economic phenomena are lower.
• State policies. Countries with a democratic system of government protect property rights and offer the best opportunities to earn sustainable rental income. In addition, in countries where the political situation is stable, the likelihood of any sudden changes in the rules of the game which might affect investments is lower.
• The situation on the housing market. This is an integrated indicator which includes analysis of the current level of market prices, the dynamics of price changes, the balance of existing and expected supply and demand, demographic trends, the level of competition, etc. For example, if a country has a relatively strong economy and growing population, but insufficient housing, it is highly likely that it will experience a shortage of supply soon. Coupled with solvent demand, this will lead to a significant increase in the price of real estate in the mass-market segment. In turn factors such as climate, the dynamics of tourist flows to a country and a specific region, as well as the duration of the tourist season, will play a key role for anyone buying resort housing. Buying real estate in a business metropolis will require an assessment of the attractiveness of the country for expat workers and the pace of its technological development.
• Financial muscle. As the cost of the “entry ticket” to the investment property market differs significantly from country to country, it is important to determine the approximate purchase budget, the initial contribution, payment schedule and the amount of related costs (legal services, registration fees, repairs, furnishing, etc.) before the transaction.
• Developed infrastructure, availability, and the cost of housing and utility services. The availability of high-quality infrastructure has a material impact on the cost of real estate. Convenient transport accessibility and the availability of social and entertainment facilities tend to make a place more attractive to potential tenants. The state of the housing and utility sector and utility prices are also important, regardless of the party that will eventually pay for them under a tenancy agreement.
• Legislation. Make sure that the country of interest has established a reliable and transparent system of property rights and that investors are protected by the law. Then it is advisable to study, at least in general terms, the local legislation governing the real estate industry as a whole and rental housing in particular. Learn about the rights and obligations of real estate owners, landlords and tenants.
• The tax system. Study carefully the tax policies in a selected country, including property tax, tax on rental income and capital gains tax. Find out the rates for these taxes, how they are calculated, taxable properties, and the requirements governing such payments. Pay attention to possible benefits, deductions and discounts.  Study other taxes and fees that may be associated with investments in buy-to-let properties, such as property transfer taxes, property management or infrastructure maintenance. Some countries impose special rules on foreigners investing in real estate. International tax obligations should also be considered. For example, double tax treaties may be in force between countries.
• Foreign exchange risks. If investments are made in the local currency, you need to take into account risks associated with exchange rate fluctuations
  

Countries with the Highest Rental Yield

Gross rental income is a key financial indicator (but not the only one) for buy-to-let properties, in other words, the ratio of the property price to annual rent. For example, if you bought a flat for USD 1,000,000 and let it for USD 3,000 a month for a year, then the return on your investment would equate to 3.6% per annum.

The ranking of countries with the highest average rental income is based on the report of the Global Property Guide portal. This resource determines the average profitability of property lets in more than 60 countries on a quarterly basis, analysing three to eight cities or districts popular with investors in each country. Real estate properties include studios and flats with one, two, three, four, or more bedrooms (with the exception of locations where there is a limited supply of flats and the market consists mostly of houses or townhouses). A gross yield is provided for all the countries, which is the yield before taxes, repair costs, land taxes, agency fees and other costs. The net yield is usually about 1.5%–2% lower.

According to the results of Q3 2023, the top ten countries in terms of average profitability from letting flats were as follows:

1. South Africa (9.95%).

Cape Town, Johannesburg, Durban, Centurion, and the KwaZulu-Natal province, including the Dolphin Coast area.

In all areas, with the exception of Cape Town and the Dolphin Coast, the average yield exceeds 10%. The best indicator (15.9%) was recorded for one bedroom flats in the prestigious suburb of Johannesburg, the Bedfordview area. Such properties with an average price of USD 36,100, are let out for USD 478 per month.

In general, the gross rental yield for flats in Johannesburg was 11.72%. The most sought-after areas are in the city’s north, including Dunkeld, Hyde Park, Houghton, Illovo, Inanda, Melrose, Parkhurst, Parktown, Parkview, Sandhurst, Saxonwold and Westcliff.

In turn Cape Town is a popular tourist destination, especially among foreigners at retirement age. Thanks to its beautiful beaches, warm (but not excessively hot) climate, picturesque cliffs and beautiful ocean views, this city is popular with buyers of foreign property. The average gross rental yield for flats in the city equals 7.52%.

In areas on the Atlantic coast such as Bakoven, Bantry Bay, Camps, Clifton, Fresnaye, Green Point and Mouille Point, real estate is in demand. Another upscale residential area is City Bowl, which includes Cape Town’s main business district. The central location and dynamic, culturally rich lifestyle, make this area one of the most stable housing markets in the city.

Notwithstanding such impressive rental figures, as a rule the housing market in South Africa is in a protracted crisis, which is associated with high inflation and unemployment, the low level of family incomes, the underdevelopment of the mortgage market, and the unstable local currency. In the period from 2007 to 2021, official house prices in the country increased by almost 70%, but real prices adjusted by inflation fell by 20%.

It is anticipated that in the near future the market will continue to weaken against the backdrop of the deteriorating economic situation and rising inflation. A decrease in both the volume of new real estate supply and demand for real estate has been forecast.

The interest of foreigners in buying housing in South Africa has decreased in recent years, which is not surprising, given the economic stagnation in the country which was exacerbated by the pandemic and global economic and geopolitical uncertainty. Even though real estate in the country is much cheaper now than it was ten years ago, the situation remains unchanged. Foreign buyers currently account for only 3.74% of the total number of housing transactions, whereas the figure equalled 6.5% at its peak in 2008.

2. Georgia (9.01%).

Tbilisi, Batumi, Kutaisi.

Studios let out in the Didi Dighomi district in Tbilisi generate the highest return or buy-to-let properties in Georgia (with a yield of 19.53% per year). Such properties cost about EUR 40,700 EUR and are let for EUR 662 per month. Studios let in the Isani metropolitan area are almost as profitable (18.29%; the average property costs EUR 37,300, while the monthly rent equals EUR 568).

Starting from 2022 and until recently Georgia has topped the rankings in terms of the profitability from letting flats. Last year, the indicator exceeded 12.1%. First of all, this was due to the large-scale influx of migrants from Russia, which led to an abrupt increase in demand for housing, a shortage of supply and an increase in prices.

By the summer of 2023 the situation had begun to stabilise. In August, the volume of housing sales in Tbilisi decreased by 9.3% compared to the same period last year, while the drop on the secondary market was 14.6%. 

At the time experts noted that the market might be losing its appeal owing to an end in speculative demand from visitors. For the time being, this has been confirmed by the decrease in profitability. At the same time, however, demand remains high and the market remains profitable thanks to limited supply. According to experts, the Georgian housing market has positive trends which will help it to remain stable and continue developing over the medium term.

3. Ireland (8.38%).

Dublin and Cork.

In these two Irish cities, the yield from lets of all types of housing range from 6.54 to 9.55%. The lower level concerns multi-room flats in Dublin (where prices average EUR 895,000, while rent equals EUR 4,875 per month). The upper level concerns two bedroom flats in Cork (purchase prices of EUR 245,000 and rental rates of EUR 1,950 per month, respectively).

According to Ireland's largest real estate website, Daft.ie, based on the results of Q2 2023, the gross rental yield in the country varies from 9.3% for one bedroom flats to 5.8% for five bedroom houses. In the centre of Dublin, the yield of one bedroom flats ranged from 5.5 to 11.6% in Q2 2023, and of five bedroom houses from 3.7 to 7.7%.

According to the analyst report on rental prices for Q2 2023, the average monthly rent index in Ireland increased by 10.7% to EUR 1,792, compared to the same period in 2022.

In the centre of Dublin, the average rent increased by 8.8% over the year  to EUR 2,307. In some areas outside the capital, the increase exceeded 10%.

The rising rates are closely linked to the lack of supply. According to Daft.ie, in August 2023 about 1,200 residential properties were available for rent across the country, representing an increase of almost two-thirds compared to 2022, but only half as much as for the same period in 2021.

In Dublin, over 600 houses were available for rent, more than double the amount in the same period last year, but still extremely low compared to other years. For instance, in August 2009, about 8,000 houses were let in Dublin.

Ireland's house price growth is as a rule slowing down as a result of a decline in demand attributable to rising interest rates and limited supply. The number of houses offered for sale decreased by 4% to 54,100 units compared to the same period the previous year.

Demand is also declining. In the first seven months of 2023 the number of purchased properties in Ireland fell by 8.2% compared to the same period last year, as opposed to an increase by 7% in 2022. The value of transactions also decreased by 2.5% after a huge increase by 18.8% last year. It is anticipated that demand for housing will continue to decline in forthcoming months due to rising interest rates and high inflation, which will significantly reduce purchasing power.

4. Puerto Rico (8.36%).

San Juan.

Flats with four or more bedrooms in the capital of Puerto Rico yield 10.89%. Such housing costs on average USD 1,487,500 and is let for USD 13,500 per month.

5. Latvia (7.81%).

Riga.

In Riga, studios and one bedroom flats promise the highest profitability: 9.01% and 8.86%, respectively. Studios cost about RUB 36,000 (average monthly rent is EUR 270), while a one bedroom flat costs EUR 55,500 (let for 410 EUR per month).

6. Colombia (7.7%).

Bogota, Medellin, Cali, Barranquilla, Cartagena, Santa Marta, Pereira, and Bello.

Two bedroom flats in Medellin have the highest profitability of 10.29%; you can buy them on average USD 93,900 and let them for USD 805 per month.

7. Morocco (7.62%).

Casablanca, Rabat, Agadir, Marrakesh, Tangier, and Temara.

Here two bedroom flats in Tangier are the most profitable options for investors. A property costing on average over USD 47,500 can be let for USD 591 and yield 14.92% per year.

8. Indonesia (7.55%).

Jakarta, Surabaya, Tangerang, Bandung, Tangerang Selatan (South Tangerang).

One bedroom flats in Surabaya can generate the highest rental income of 11.07%. The average cost of such housing is almost USD 18,900, while rent costs USD 174 per month.

9. Italy (7.4%).

Rome, Milan, Turin, Florence, Genoa, Palermo, Naples, Catania.

Studios in Palermo and Naples deliver the best return of 12% per year. The average cost of properties is EUR 55,000 -65,000, they can be let for EUR 550 to 650 per month.

10. Lithuania (6.67%).

Vilnius, Kaunas, Klaipeda, Siauliai.

Studios in Kaunas will generate the best return in this country (7.71%). Costing on average EUR 54,500, they can be let for EUR 350 per month.

Some Tourist Countries 

Separately, it is worth considering countries which did not make the top 10, but are definitely of interest to potential investors as they are major tourist destinations.

• Turkey.  At present the average yield from letting flats in this country is 6.52%. Investors are drawn primarily to property lets in the following locations: Istanbul (6.21%), Antalya (5.05%), Izmir (6.51%), Ankara (7.15%), Adana (7.26%), Konya (6.81%), Kayseri (6.16%) and Bursa (7.05%).
  The most profitable lets are two-bedroom flats in Keçiören, the most densely populated area of Ankara. Costing on average USD 55,700, they can be let for USD 470 per month and deliver a return of 10.13% per year. As a country for investment, Turkey combines both positive and negative factors. For example, the real estate market is showing steady growth. The country enjoys stable demand among tourists.
  A number of cities are attractive for buy-to-let resort properties. High demand for housing has also developed in Istanbul and Ankara. However, one key obstacle deters investors from choosing Turkey -  the unfavourable situation in the economy. The country is experiencing hyperinflation (even according to official data, prices rose in 2022 by 64.27%). The Turkish lira is considered one of the weakest world currencies.
   Against this backdrop, the growth of housing prices in the national currency reached 80% in 2022. According to most experts, the Turkish economy will recover at a slow pace, and the inflation rate will remain in double digits at least in 2023 and 2024. The lack of any regime change, as well as the devastating earthquake which occurred in February 2023, do not help.
• Thailand. The Global Property Guide estimates the average rental yield of flats in Thailand at 6.07%. The research covered five regions: Bangkok (4.42%), Pattaya (6.2%), Nonthaburi (5.76%), Samut Prakan (6.1%), and Phuket (6.73%).
  One bedroom flats in Phuket offer the best rental yield of 10.66%. Such flats cost on average USD  50,300, while the average rent is USD 447 per month. In addition to a good yield, the country’s advantages include the low threshold for entering the market and the availability of options for obtaining guaranteed income from property developers or management companies (primarily in resort destinations).
   In terms of the risk-to-profit ratio, many experts even rank these offers as the best. As the tourist flow to Thailand is steadily recovering after the pandemic, occupancy issues are not expected in the near future. As a rule, short-term lets yield higher returns for investors than long-term lets, with small flats in condominiums preferred to villas.
• Spain. Flats in Spain generate an average yield of 6.09%. The following data on yields exist for eight cities: 5.27% in Madrid, 6.43% in Barcelona, 5.61% in Valencia, 6.04% in Cordoba, 7% in Alicante, 5.28% in Seville, 5.75% in Palma, and 7.37% in Murcia. Housing in the San Martin district in Barcelona, both small and spacious, delivers the biggest profit. One bedroom flats have a rental yield of 8.58% (they cost on average EUR 237,000 and can be let for EUR 1,695 per month), two bedroom flats have a yield of 8.01% (costing EUR 277,000 and let for EUR 1,850 per month), three bedroom flats have a yield of 8.72% (costing EUR 319,900 EUR and let for EUR 2,325 per month), while multi-room flats have a yield of 9.19% (costing EUR 395,000 and let for EUR 3,025 per month).
  According to experts, at present Spain is a promising market for foreign investors, with the country's real estate market ready for further expansion, which is supported by the strengthening of the economy and the increase in housing demand. According to forecasts, the population of Spain will reach 48 million people by 2025, which will further stimulate the demand. Montenegro, Portugal, Greece, the Philippines, and Cyprus can be included in the list of countries with developed tourism and good prospects for investors in buy-to-let properties. Flats in these countries generate an average rental yield of 5% to 6% at present.

Developed and Reliable Markets 

The experience of South Africa in particular clearly shows that annual rental income is not the only factor that you should consider when choosing a country. A strong economy, well-established legislation and guarantees of the protection of property rights and the interests of investors are of great importance. While profitability in such markets may be lower than in record-breaking countries, it can be offset by other factors.

• The United Arab Emirates. In recent years, the UAE has been one of the best areas in the world to invest in real estate owing to its remarkable economic growth. The country has a stable and diversified economy focused on trade, tourism, real estate and finance. The climate, abundance of attractions, and world-class infrastructure ensure a year-round flow of tourists. The state actively promotes the attraction of expat workers, thereby increasing demand for real estate. Safety, the high quality of life  and amenities attract affluent tenants and buyers to the country.
  Many investors are attracted by the favourable tax regime. There is no income tax, capital gains tax or wealth tax in the UAE. Tax savings enable you to significantly increase the return on your rental income. In addition, the national currency, the dirham, is pegged to the US dollar; in other words, investments are protected against exchange rate fluctuations. From a legal perspective, homeowners are also protected by local legislation.
  Dubai is the main city for real estate investments in the UAE. One of the fastest-growing cities in the world, it has a thriving economy and extensive real estate portfolio. No taxes and the high demand for housing enable property owners to charge high fees. The gross rental yield on flats ranges from 3.05% to 8.57%. Based on the average yield of 6.13%, Dubai is ahead of other world metropolises, such as London and New York.
  Due to the large volume of supply and stable solvent demand, Dubai offers favourable conditions for investing in buy-to-let villas and mansions. The gross yield here can exceed 10% per annum.
  The main obstacle to investing in Dubai is the high cost of housing. The average cost of studios in four prestigious central districts (Downtown, Business Bay, Dubai Marina and Palm Jumeirah) exceeds USD 346,000. The average cost of one bedroom flats in these areas equals about USD 615,000; in the case of two bedroom flats, it is almost USD 1.1 million.
  Dubai is expected to remain an appealing market for both investors specialising in buy-to-let properties and buyers of secondary housing seeking an efficient tax system for the foreseeable future.
  People with a more modest budget can opt instead for the Abu Dhabi market. The average cost of a studio in the best areas of the UAE capital (the islands of Yas, Saadiyat, Al Reem, and the Al Raha Beach area) is just over USD 200,000, while a one bedroom flat costs USD 350,000 and a two bedroom flat USD 645,000. At the same time, letting properties in Abu Dhabi generates on average a gross yield of 5.87% per year.
  Ras Al Khaimah, Ajman, and Sharjah may be of potential interest to investors. These are developing areas with the potential for tourism, industrial, and business growth. The average gross yield here ranges from 3.54% to 5.39% at present.
• Great Britain. The British real estate market offers a number of advantages to international investors, primarily stability and resistance to crisis phenomena. With a strong economy, developed infrastructure, regulated legislation, a relatively mild tax system and the status of one of the world's financial centres, the country attracts people from all over the world. Taken together with the favourable demographic situation, this guarantees high demand for housing. A constant housing shortage drives up real estate prices and rental rates. The favourable environment for investors, combined with the stability of the national currency, minimises currency risks.
  The British market is currently experiencing a number of difficulties, in particular, due to the consequences of Brexit, the pandemic and an increase in mortgage interest rates. Real estate prices could stagnate or even drop for a while. However, they will eventually start growing again. According to forecasts, the average cost of housing in the country will grow by 35% in the period from 2022 to 2035.
  This is true first and foremost when it comes to London. The status of the British capital as a global metropolis gives the real estate market universal appeal and sustainability. Even during economic downturns, the cost of housing in London remains stable compared to other markets and rapidly recovers. As a result, between 1995 and 2023 real estate prices in the city increased by almost 620%.
  Demand for housing in London, especially in prestigious central areas, constantly exceeds supply. Therefore, the value of real estate remains high, ensuring a reliable source of income and potential capital gains. At the same time, the high cost of housing and price increases do not make it possible to expect a high rental yield. According to Joseph Mews, a British company specialising in residential real estate investments, properties in areas like the City, Kensington, and Wokingham yield at present only 1.5%–2% annually.
  At the same time, rental real estate in a number of regional cities is also in short supply, providing more favourable conditions for landlords. According to Joseph Mews, in 2023, you can obtain an average yield of over 5% by letting housing in Newcastle (5.1%), Manchester (5.17%), Liverpool (5.23%), Leeds (5.27%), Birmingham (5.3%), Leicester (5.31%), and Derby (6.07%). Moreover, rent growth is expected to increase by 10.0%-13.5% in all these cities by 2025.
  Housing costs on average GBP 202,400 in Birmingham, GBP 215,700 in Manchester, GBP 223,800 in Leicester, GBP 181,000 in Derby, GBP 152,300 in Liverpool, GBP 205,600 in Leeds and GBP 147,200 in Newcastle.
  Sweden, the Netherlands, Singapore, France, Germany, Canada, and Australia are other developed and reliable markets that may be of interest for buy-to-let investments.

In a Nutshell

Investments in buy-to-let properties can become a source of stable income and generate a good profit. In the current environment an infinite number of diverse properties around the world are available to buyers, while each location has its advantages and disadvantages. The list of countries with the highest rental yields in 2023 includes South Africa, Georgia, Ireland, Puerto Rico, Latvia, Colombia, Morocco, Indonesia, Italy and Lithuania. Countries attracting significant inflows of tourists, such as Turkey, Thailand, and Spain, as well as the developed and reliable markets of the UAE and the UK, are also performing well.

Cover photo: Nastuh Abootalebi (Unsplash)