Housing price-to-rent ratio is a simple and practical indicator to value real estate. As we all know, there is a certain relationship between housing rents and real estate prices. According to the general rule of the market economy in developed countries and regions, housing price to rent should have a relatively fixed value between 1:300 and 1:200. In general, buying housing may be the active of speculative investment; however, renting housing is a kind of basic living needs. So housing price-to-rent ratio can reflect the basic housing demand and reflect the local real estate market supply and demand objectively in cities. The essence of using housing price-to-rent ratio to value real estate is the income approach application in real estate appraisal. Like the income approach, applicable objects of housing price to rent ratio are those kinds of real estate which have revenue or potential revenue, such as housing, apartments, offices, hotels, shops, restaurants, playgrounds, heaters, parking lots, gas stations, standard factory building, storage, agricultural land. Applicable conditions of housing price to rent ratio is that real estate's future earnings and risk can be accurately quantify. The same as the income approach, valuing real estate by housing price to rent ratio also has some problems and limits and makes wrong market analysis possibly and may result in misleading conclusions. So, it is very critical for real estate appraisal practitioners to use the indicator scientifically and rationally.
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