Q1: how do we tell if a psf residential price in a leading city is bubble and overpriced? There are many criteria within supply/demand framework, including wage level, rental yield, CPI, hot money from Chinese investors, land + construction cost, psf comparison with other leading cities…

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices has a nice evolution-graph comparing various countries.

Today I will focus on rental yield. See also my blog post on rental yield of Singapore vs China. Now compare vacancy rate of

1. shop units in malls
2. office units in office towers
3. soho units
4. hotels
5. mansions

Mansions

are only for the wealthy investors. I feel it’s more like art collectible or race horses. Discretionary investment. They don’t need to rent out. Without the rental as link, the supply-demand situation is somewhat decoupled from the economy.

Private condo

are somewhat similar to mansions. Demand is often driven by wealthy investors and therefore decoupled from the economy. As a result, in leading cities psm can keep rising irrespective of wage level.

This often feel like Ponzi scheme, if the underlying value[1] remains unchanged while the market price grows exponentially.

[1] as measured by rental and construction cost

Shop/hotel/office units

are built and  purchased for rental. It’s a factor of production. Shops esp. Occupancy is usually excellent in shopping malls. However, vacancy can be very bad for a “sub-prime” location like ground floor shop units in a remote warehouse. Hotels and offices can also stay vacant for a long time.

I guess offices are usually leased for a large area. Very few tenants for tiny offices. Tiny shops are slightly better.