And the winner is: Tokyo. Just days after being announced as host of the 2020 Olympic Games, the Japanese capital won gold again - this time in the property stakes.
Tokyo was named as the top world city for investors seeking above-gilts income from residential property, wresting the crown from New York. In the report, prepared by Savills, double-digit growth is forecast for Tokyo by 2016.
Reporting on residential rental growth in the leading cities, Savills, which has been tipping New York for some time, describes Tokyo as the "surprise finding" of its latest analysis.
"Tokyo now also looks like a 'buy' for investors seeking income. Rental yields in Tokyo look extremely attractive in relation to the extremely low returns available on government bonds in Japan, and the city tops the Savills world cities investment ranking, ahead of New York. Paris and London are ranked third and fourth respectively," the report says.
The methodology compares residential property yields with the return on 10-year government bond yields, or gilts. This measures the extent to which real estate income is performing against the local risk environment.
Savills' findings reveal that some cities in the "New World", such as Moscow and Mumbai, look overvalued, while some "Old World" cities look good value.
"Some of the lowest-yielding cities have seen little or no rental growth while capital values have surged," says Yolande Barnes, director of Savills World Research. "If there is insignificant rental growth in future, these capital values may look overheated."
While Savills believes it is realistic to look for 30 per cent growth in average New York residential capital values during the next three years, the potential capital value uplift in Tokyo is even greater. Savills qualifies that this is unlikely to be realised because it is a more domestic and less internationally invested market than New York and London.
"Nevertheless, the firm believes that substantial, double-digit growth is possible over the next three years in Tokyo, too."
New condo sales in the Tokyo area rose 53 per cent year-on-year in August, according to Real Estate Economic Institute data. And, with property prices less than half of their 1980s peak, Tokyo is "cheap" in comparison to other regional hubs such as Hong Kong and Singapore. This is attracting Asian bargain-hunters, says Akihiko Mizuno, international director and head of capital markets at Jones Lang LaSalle (JLL).
JLL has held sales events in Singapore and Hong Kong, where the weak yen and "Abenomics" (the assertive fiscal and monetary measures adopted by Prime Minister Shinzo Abe and the Bank of Japan this year), appeal, Mizuno says.
"Wealthy Asian individuals who are experienced diversify capital wherever they see opportunity - and now is the time to put some of their money into Tokyo property." A brand new condo in a central part of Tokyo costs 30 to 40 per cent less than an equivalent property in Singapore - and the quality is better, Mizuno says. "So you are buying a better product, cheaper, in an equally prime location - it can't get any better than that." But if you don't believe things will get better, you won't buy, he notes. "Abe has changed that, with his "three arrows" - fiscal stimulus, aggressive monetary easing and structural reforms to boost Japan's competitiveness.
There is a lot of hope among Japanese that finally, real estate prices will start to increase. And with the Olympics, sentiment will only improve further."
Barnes also sees a correlation between "attractive looking property markets. We recently tipped Rio, too", and fundamentals which the Olympic committee look for.
"A vibrant and growing population plus a strong economy will make for both a good Olympic Games and a strong housing market," Barnes says. "Tokyo is enjoying a bit of an urban renaissance with more people wanting to live near the CBD rather than the suburbs. You can't describe Japan as a young country like Brazil but, when you have younger creative people gathering in the centre of a city, it is usually a pretty good indicator that residential values will follow."
Locally, Will Johnson, head of research and consultancy at Savills Japan, says the real estate sector has reacted "with cautious enthusiasm" to the Olympics announcement. "The Olympics will help to maintain the momentum of the economic recovery that has been spurred by so-called Abenomics. As the host nation, the positive sentiment created at home should support growth - encouraging businesses to expand and consumers to spend," he says.
For the property sector, the emerging recovery in the wider economy coincides with a bottoming out of the Tokyo market, Johnson says. "Improved market conditions will support occupancy rates and rental incomes over the coming years, adding value for investors."
Olympic-related public investment will be huge. An estimated HK$30.3 billion in construction investment is expected, including 11 new permanent venues and the refurbishment of 15 major community sports facilities, Johnson says.
"Approximately 130 billion yen [HK$10.3 billion] will be spent on the new 80,000 capacity Zaha Hadid-designed National Stadium alone. The Tokyo Metropolitan Government estimates that the 2020 Olympics will have spill-over economic benefits worth 2.96 trillion yen. This will include increased retail and tourist demand."
Many of the new facilities
will be located on vacant development sites in Tokyo Bay, including the Olympic village. This will help to generate a sense of critical mass in this low-density part of the city, Johnson says.
"Developers who own large development sites in areas such as Harumi, Ariake and Aomi can expect to see increased interest, primarily for residential units. Additionally, public investment in new roads and transport infrastructure will create additional value, supporting land and condo prices in surrounding locations. Up to 433 hectares of new green areas will also be created, with green corridors developed through the planting of 1 million roadside trees."
The downside is an expected increase in construction costs, as contractors compete to secure engineers and skilled construction workers for Olympics projects. "The related added costs may make some planned privately-led developments unfeasible, mitigating the risk of excessive new supply to a certain extent," Johnson says.
What you can buy for US$365,626
A one-bedroom condo in a 49-storey twin-tower complex close to the new Tsukiji Market, to be relocated to Shin-Toyosu. The first tower, Krono Residence, is due for completion in March 2014, and the second, Tiaro Residence, in August 2016.
What you can buy for US$1.9 million
The priciest four-bedroom apartment in the same complex. Facilities include a gym, golf range and bar lounge. Situated six minutes by train from Tokyo, and 24 minutes from Haneda International Airport.