What's the best option?

A common question I've been getting recently is, "should I invest in a REIT nowadays instead of a rental property?"

A quick look at available data would show that REITs or bonds have superior returns compared to rental properties. If you consider other costs such as furnishing a rental unit, repairs, and vacancies–the net rental yields (or the "capitalization/cap rate") only go lower.

So why rental properties? There's a capital appreciation play.

Now the question is, how much capital appreciation can investors forecast?

I've compiled historical BIR zonal values for Makati central business district (CBD), and the fifth photo shows different properties' compounded annual growth rates.

In sum, the rental yield PLUS the capital appreciation of a rental property (otherwise called "total return") MAY outperform the returns of REITs and bonds.

However, I'd be careful applying these percentage returns in your forecasts. These figures are averages taken from the country's top business district and may not represent all properties. For example, some buildings in Makati registered negative returns in particular periods.

Furthermore, the capital appreciation figures shown in the table are the long-term averages. If you were to isolate figures to a time when the Philippines was experiencing a recession, figures would offer nil or negative returns. So assumptions should use at least a 10-year horizon.

What would also be interesting to see how the historical returns of different properties (e.g., luxury, mid, and low cost) compare to each other. Probably in another post.