Yes, I think it is important to retain a degree of scepticism though remember that property prices are driven by a number of factors – including net immigration of 50k+ professionals per year with high salaries, the flow on effect of outer suburb prices allowing residents to upgrade to inner suburbs and push up that price, the fact that we have continuing salary growth in Australia (albeit at risk right now), and that investors will begin to enter the market as rental yields become more attractive. With the lack of confidence in the stock market right now, there are no doubt a stack of investors keen to look for safer investments. Real estate has typically been the safest investment to date, and I see little chance of that changing. 

Our rental vacancy is at a record low (in NSW). There is talk of rents continuing to rise well into 2011. Builders will not commit to building new properties if there is no economic return for them. So if I were to assess the relationship between rents and capital gains crudely – i would suggest that with the current rental crisis – yields will continue to rise until such point as they lure builders to fix the rental crisis by adding more properties. Either way, I see realestate as a relatively safe investment in the current economic environment.

Just to add to that – if you are buying a piece of land and adding capital value to that land through renovation, rebuilding or subdividing, your profits are in a sense buffered by the value YOU are personally adding to the land.

Loz