The cyclecontinues until the bubble bursts. Owners rush to sell, causing prices to collapse.
As for condo prices, one way to assess fundamental value is to compare prices withhistorical rents. Rents reflect how much people value housing units for use without thebenefit of future price appreciation.
The price-to-rent ratio, which is the property's purchase price divided by annual rent, is akin to the price-earnings ratio, or P/E ratio, that is the key to valuing shares in thestock market. The price you pay for a stock should reflect current corporate earningsand reasonable expectations about future earnings. The same is true for a home. A condo's price has reached bubble level when its price far exceeds what could be reasonably justified in terms of its rental income stream
With the current condo price situation in mind, we at SCB Economic Intelligence Centre (EIC) went on the hunt for better data, surveying about 500 condos in the Bangkok area in April.