Real estate has always been a hot investment option. Year after year we see lists and reports on the cheapest or most expensive places to buy property. While these lists make great reading material, they are not always good indicators of whether or not a property is worth investing in or not.
|Credit: Yvonne Daniels|
As a part of its economic outlook and forecast report, the Organisation for Economic Cooperation and Development, (OECD) recently rated property values among its 34 country members.
The focus of the study was to assess whether property prices in these countries were overvalued or undervalued- not to measure rise and fall in prices, or cheap and expensive rankings.
For this valuation, if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) were above their long-term averages, house prices were said to be overvalued, and vice-versa. The algorithm provided an index that can be very powerful when assessing investment options.
Among the OECD countries, South Korea, Japan, Germany, USA and Ireland topped the chart for having the most undervalued properties, while Belgium, New Zealand, Canada, Norway and Australia fell on the other extreme of the spectrum, as having the most overvalued properties.