Forecasting residential property returns

Tim Farrelly  | farrelly's | 23 June 2011

The seeming ability of the Australian residential housing market to defy normal investment principles has long been remarked upon.

Under an Occam’s Razor view of the world, the key determinants of future returns for any asset are growth in income and Price Earnings (PE) ratios - but both have little to no relevance when attempting to forecast returns on Australian residential property. The PE ratio (value divided by net rents) has hovered in the 40 to 70 range for years. And growth of rents over ...