What about peoples naivety, greed, false information from media, estate agents, developers, etc. that caused the price hikes. No calculation can predict anything like this.

For example: Yesterday I heard a man called Dolf De Roos on the Mooney radio show telling us that NOW is the time to buy and also buy his book of course. How did he get on the radio and how much is he paid to by the developers for this? In fairness, Derek Mooney was skeptical about it all but I think this is how we are fooled based on a numbers game theory. There are always people who fall for it. How can you measure this nonsense?

Other example: Estate agents and therefore media have always told us not to put in that extension, kitchen, new windows, etc as you never get your money back when you want to sell. They always want you to sell instead of putting all that effort in your property. That is because estate agents want the market to roll/move and sell your property for fear you actually might like your house so much that you might decide not to sell. That is no good to an estate agent. How can you measure this nonsense?

Other example: last Sunday Time Home section – The DDDA is desperately trying to get rid of their affordable homes “although within 20% of the market value, can still benefit the buyer” according to Glenkerrin Homes. This article also tells us how much it has gone down in price. But they don’t tell us the real value of property. Again, how can you measure this nonsense?

What I am trying to say is that it all depends on how much people fall for this or fight against this nonsense. This can’t be calculated by a simple formula.

Second, the “then surely long term interest rates were always below the rental yield.” Thats the basis for your model, it might be worth checking out the facts there first, the last 15 years have been very low…

The yield model is not based on anything real
10 year rate is 5.21% on AIB… they arent giving a 25 year rate…. put that in the cost of money…. factor in say 1% extra for the 20 year rate. (thats taking some risk)

On income, you are assuming 950/month no vacancies or maintenance costs… ignoring the 200k empty houses in Ireland, the declining population due to immigrants leaving… ignoring the reductions in rent allowance/dole….Again, I think revenue assumptions are optimistic

and finally the value of it after 25 years… There will be some value certainly… couldnt speculate one way or the other…. if you buy well, it could be in a good area and worth a few bob, if you buy badly who knows…

Great unknown is what will the country be like in 5,10,20,25 years time.

but hey, differences are how people make money… go for it… if you make money great, enjoy your success…if you dont, dont come crying for a bailout.

I reckon the other reply was from someone who saw some snake oil salesmen showing these types of models before in an effort to get gobshites to pay over the odds for an investment

at some price point, property will be worth investing in… theres plenty more pain before that though

staring : Les Metaphors

http://www.youtube.com/watch?v=mM612gUZemQ

If you feel my logic doesn’t stack up then I’d appreciate an explanation as to why you believe that, rather than smart comments and a bunch of metaphors

If over the 100 years quoted, rental yields were in the region of 7-8%, then surely long term interest rates were always below the rental yield.

This means that any investor (even without speculation) would still benefit from a highly geared investment in property. They don’t need to put up full capital value of the property. They may simply risk the deposit, borrow the balance at the long term interest rate (on average) and then gain the difference.

The yield model ignores this gearing possibility for investors and is the reason that property values should always be priced above and beyond the simple rental yield model.

For example:

If I had I had 100K to invest and property was providing a 7.5% return, I would expect 7.5K return per year.
However the reality for property investment is that 100K could purchase 10 properties placing a 10K investment in each and borrowing the remainder at an interest rate of 4% (say).
The investor would be exposed to repayments of 4%x900K but recive rent of 7.5%x1000K
If you do the maths you see that the investor thus gets a 3.9% yield on their original investment, but also gets the property purchased for them over the life of a 25 year mortgage .
This gives them a return of 900% on their original 100K investment over 25 years which amounts to an extra annual return of c 9.2% even without any capital growth (speculation).

The point being that therefore, that the value in property investment is far above the basic rental yield due to the gearing potential of such investments, stemming from the fact that interest rates are generally lower than rental yields.

Using the above figures the actual return is more in the region of 13.1% even with a rental yield of only 7.5%

To use his Newbridge example where rent is in the region of 950/month with a rental yield of €11,400 a year.
MacWilliams suggests that investors need to receive a 7.5% return and thus price this property at c. 159K
But if we allow for the fact that the true return is actually 13.1%
Then the long term price could be deemed to be more like 278K

This would suggest the property market in Ireland is only 20% overpriced. And this figure could be considered to be even lower in more stable city based areas.