Friday, November 6, 2009

House Prices

In the post "Real Estate" I argued for a more methodic way to put a price label on a flat or a house. Now a found a very simple article agreeing with that and giving the basic ROI (return on investment) and PER (Price to Earning Ratio) as two methods to measure if a real estate property price is fair. Glad to see that this message is finally slowly sent to the public. The article is in Spanish and entitled "How to know if a home is priced adequately". Since this is a Spanish article, let's take Spain as an example. Applying the formula to the Spanish market and specifically to the market in Madrid, Barcelona and Vizcaya, one will very quickly see that real estate is still vastly overpriced and should come down. Currently in mid-2009 after the prices have come down some already the PER is stated as 27 on average. I believe that the PER as calculated in the mentioned article is not correct as it does not take into account issues such as taxes (to be paid on the rent), cost of maintaining the property, etc. This indicates that the true PER is significantly above 27 in this part of the world.

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