The same building generates very different yields depending on which country it stands in. The variation reflects local financial and legal conditions rather than differences in the buildings themselves.
What a yield actually represents
A yield is annual rent divided by capital value. A low yield means buyers are paying a high price relative to current income.
That willingness reflects expectations about future rent growth, the cost of borrowing and the alternatives available. A low yield is a statement about the future rather than a poor investment.
Comparing yields between countries therefore compares expectations, not quality. The number is a price, not a measure of performance.
Local interest rates anchor the level
Property competes with government bonds for capital. Where bond yields are low, investors accept lower property yields, and prices rise relative to rents.
Countries with persistently low policy rates have seen yields compress across all property types. The compression reflects monetary conditions rather than the buildings.
Because rates differ between currencies, cross-border investors must consider the cost of hedging back to their own currency. A yield that looks attractive can be unattractive after hedging.
Tenancy law changes the income's reliability
Jurisdictions differ in lease length, indexation rights, security of tenure and the ease of recovering possession. Each affects how certain the future income is.
Markets with long indexed leases and strong enforcement support lower yields, because the income resembles a bond. Markets with short tenancies and restricted rent adjustment carry higher yields.
Rent regulation reduces both the level and the variability of income. Whether that raises or lowers the yield depends on which effect investors weight more heavily.
Taxes and costs reduce what reaches the owner
Headline yields are usually quoted gross. Property taxes, transaction duties, management costs and repair obligations differ substantially and can consume much of the difference between markets.
Transaction taxes matter particularly for investors expecting to trade, since they are incurred on entry and often on exit. High transaction costs lengthen holding periods.
Withholding on rental income paid abroad and the treatment of depreciation vary by jurisdiction and change over time. Net yields converge more than gross ones.
Why growth expectations do the rest
Where population and incomes are expected to rise, buyers price in future rent increases and accept less income now. Where they are not, current income has to justify the price.
Supply responsiveness matters as much as demand. A market that builds readily will not sustain rent growth however strong demand becomes.
The lowest yields therefore appear in constrained, growing cities with stable law. That combination is scarce, which is exactly why it is expensive.