This is a continuation from V4:
https://forum.lowyat.net/topic/3156300

The collapse of the US housing market bubble emphasizes how important it is to figure out what property is really worth, from a fundamental perspective. Make sure you’re not over-paying!

There are 4 yardsticks of bubble markets:

•Price to Rent Ratio (or Yield)
•Relative Prices
•Affordability
•Price of new builds


VALUATION TOOL 1: THE PRICE TO RENT RATIO

The gross rental yield) is the housing parallel to the price/earnings ratio. Here is a set of rules of thumb for the housing market:

VALUATION YARDSTICKS FOR THE HOUSING MARKET

PRICE/RENT RATIO GROSS RENTAL YIELD (%)

5 20 Very undervalued
6.7 15 Very undervalued
8.3 12 Undervalued
10 10 Undervalued
12.5 8 Borderline undervalued
14.2 7 Fairly priced
16.7 6 Fairly priced
20 5 Borderline overvalued
25 4 Overvalued
33.3 3 Overvalued
40 2.5 Very overvalued
50 2 Very overvalued

But there are exceptions to this. When strong future growth in value is expected e.g in areas where transport infrastructure is being upgraded then relatively weak present earnings can be acceptable.

There are several good reasons why people should pay attention to the 'valuation parameters':

Higher rental yields push the housing market higher

If rental yield levels are high, this will tend to mean that the interest cost of buying a house is low, compared to the cost of renting a house:

•Potential buyers will pay less to borrow from the bank (in order to buy) than they pay when renting a house. Many will move from being renters to buyers.
•Entrepreneurs will find it makes sense to buy houses to make money, i.e., buy in order to rent them out.

Both these factors put upward pressure on house prices.

Lower rental yields put downward pressure house prices

If rental yield levels are low, this will tend to mean that the interest cost of buying a house is high, compared to the cost of renting a house:

•Potential buyers will find that to buy a house involves paying much more to the bank, than it costs to rent a house. Buyers, especially first-time buyers, may have difficulty financing housing. Banks will be worried about over-lending at loan-to-income ratios which mean that a slight increase in interest rates will mean financial crisis for the borrower.
•Entrepreneurs will find that buying-to-let won't pay.

The house price can be viewed as a kind of circle, with houses prices moving from yields of (say) 4% to 11%

•Yields shifting down to 4% would represent danger.
•Yields rising to 11% would signal opportunity.


VALUATION TOOL 2: RELATIVE PRICES

People tend to actively look for cheaper and better alternatives. Where houses are very highly priced, people will seek more affordable alternatives. So if you’re buying property that’s amazingly expensive on a sqaure foot basis compared to its surrounding developments – BEWARE!


VALUATION TOOL 3: AFFORDABILITY

If house prices are so high that few people can actually afford to buy them, then their value will likely fall in future. A reasonable measure of value is a country’s GDP per capita. In a country where the ratio of house prices to GDP/capita is high, it’s a fair bet that houses are overvalued.

Relative to GDP/Capita levels:
•House prices in Luxembourg, Belgium, Norway, Denmark and Austria seem cheap.
•House prices in the UK, Italy, France and the Netherlands seem comparatively expensive.


VALUATION TOOL 4: PRICE OF NEW BUILDS

If house prices are much higher than the cost of building (construction costs), developers are motivated to put up buildings. So when you see a rush by developers to build, that’s a danger sign. As new supply comes into the housing market, that tends to put pressure on prices. So when house prices are far greater than new-build costs, it's a very clear signal that prices are likely to come down.

1st to check in?

This post has been edited by TheRoadRunner: Apr 4 2014, 10:30 AM

Wow! That was fast! Congrats!

Woohoo V5 aleady. ..hurray

US property market recover ? look again

http://thehousingbubbleblog.com/index.html

Which number is mine?

Ya, looks ridiculous to expect price of landed to reduced 67%. But for landed the rental yield expectation should be 2-3% to be called fairly priced (my thinking). Maybe 4-5% ? That is because of the capital appreciation potential which the table did not take in.

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Yeah, I'm also not expecting it to drop 67%.

I guess it's a factor of both of these:
1) Landed property is currently overpriced. (40%)
2) Rental for landed property is very cheap compared to condo. (27%)

I'll buy when price drops by 40%, but currently renting is just too cheap.

Wow move to new house liao

Just step in to Q2.. v5 come already.. good.. more bubbles.. more affordable house

I'm very disappointed that u follow old DDD footstep, shiok sendiri n gain nothing, then hide forever.
Faster go n buy one la...

Bro bear wan 2

Ok noted

yay, more space to tok

Wait til 2015 , those condo or appartment with dibs complete
Then the bubble will start burst(newbie thought)

Wow...everyone said about that. I better fast fast sale all my tenanted units now.

Some of the buyer assume they can sell the property and earn the profit without any paying
After complete , no one buy and don't have holding power
Forcing them to sell their property with lower price
So , I'm collecting bullet for the cheap condo(newbie thought also)

If your area is new, then there may be a chance if the market really crash. If your area is established, you need more severe crash to meet your target

If the landed house is RM1m now, you are looking at RM600k price. I also want

The latest kidnapping case further dampened chinese buying in iskandar. Interesting how country garden will handle this mess.

Do u all know that general main land chinese r already very angry with malaysia since mh370 case ?

wah! after V5 also bubble not yet burst.

guess it's all a dream and still a dream for those who are waiting for it to burst.

holy shiat...V5....