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Tokyo named best residential investment market.

Tokyo beat out New York as the top world city for investors seeking “above-gilts income” from residential property.

A new study by Savills, the real estate consultancy, found that rental yields in Tokyo looked extremely attractive in relation to the extremely low returns available on government bonds in Japan.

Apart from trouncing New York, Tokyo also defeated Paris, London and Singapore on Savills’ charts, emerging as the unexpected victor of the research.

“Tokyo now looks a surprise but convincing ‘buy’ for investors, offering a gross yield at +3.9 percent over government bond rates,” the report said.

Savills compared the gross rental income that investors receive in each city “net of gilts,” providing a measure of “residential yields across its world cities, taking the return on 10 year government bond yields in each country away from gross rental returns.” This measures the extent to which real estate income is performing against the local risk environment.

Based on the results, Savills found “new world cities” such as Moscow and Mumbai appear over-valued, while old world cities appear to offer good value for investors.

“Residential rental growth in the world’s leading cities outperformed office rents in the first half of 2013, making residential real estate look a viable investment asset class,” Savills said.

However, the firm cautioned that low-yielding cities, where house prices were not underpinned by rental income, could be overvalued.

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