tag:blogger.com,1999:blog-27584252.post3175690466476447455..comments2024-03-22T18:15:47.666+11:00Comments on Boy on a bike: Are we in a real estate bubble?Unknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-27584252.post-46949853781945709612010-02-04T10:31:26.974+11:002010-02-04T10:31:26.974+11:00That is a bit simplistic. There is no direct relat...That is a bit simplistic. There is no direct relationship between rental price and house price.<br />Most owners would use a measure like "Rental yield", which is a % of the purchase price. So, buy a $500,000 house and get $25,000 rent per year, your rental yield is 5% (which is pretty good). If the rental yield drops down below about 3% then it starts becoming a loss making venture (which maybe the owner is happy about - negative gearing for future capital gain)<br />So, say the owner paid the $500,000 and got a yield of 4%. 5 years later the place gets revalued at $1million. Yes, the yield has halved in theory, but the owner didn't pay $1million. That is his/her capital gain if they sell the place.<br />It is basic supply & demand. Nobody has been building new housing stock in Sydney, but lots of people want to live here. Result: house prices go up!Anonymousnoreply@blogger.com