Forbes’ formula deals us in for dubious honour
Ashley Ford
Province
Vancouver has been ranked No. 6 among the world’s most overpriced real-estate markets. File photo by Arlen Redekop – The Province
We all know real estate in Greater Vancouver is in nosebleed territory — but globally overpriced?
According to a somewhat complex formula arrived at by Forbes magazine, Vancouver allegedly has the sixth most overpriced real-estate market in the world.
Monaco, the Mediterranean haunt of the rich and plastically-improved, tops the list of the globe’s most overpriced real estate followed by Rome.
The rankings were compiled by calculating an effective annualized rate of return on a property based on annual cash flows derived from renting and adjusted for capital gains tax, transaction fees, operating costs and maintenance, appreciation and inflation.
“We then flipped the return rate to resemble the more familiar price-to-earnings measure,” says the Forbes report.
That left the champion Monaco with a P/E ratio of 74.07.
The next nine are Rome (50.51), Paris (37.45), Madrid (30.30), Los Angeles (26.88), Vancouver (26.81), Vienna (25.77), Auckland (25.64), Zurich (25.19) and Oslo (23.45).
The study looked at 50 financial capitals in every continent, except Antarctica, of course. For the most part this meant one city from each country but for countries like India, China, the U.S., Australia, Canada and Switzerland where there were multiple, distinct financial centres, several cities were measured.
If you are thoroughly lost by now, Forbes offers a somewhat simpler way of absorbing their numbers.
“Think about each market like you would a stock: The higher the price-to-earnings figure, the more you have to pay to get one dollar of return,” it says.
The valuations were based on data from GlobalPropertyGuide.com, an international real-estate research firm. For each market, it assumed no debt financing, a constant cost of capital, a 10-year hold of the property and a non-primary residence.
© The Vancouver Province 2007
