When the market is overinflated, that's exactly what you should do. And the underlying asset doesn't necessarily increase. Further, the price of the house (underlying asset) doesn't raise rent (apply pressure on the cost to borrow the asset) unless the demand is already present. There are many real estate markets where rent is a bargain compared to home ownership.

> When the market is overinflated, [taking a short position] is exactly what you should do.

Now we're talking. Related: how do you feel about shorting TSLA? Or GOOG? If you think its appropriate to do so, what fraction of your net income or worth are you willing to place on that bet? I'm pretty sure they're overpriced, but I'm not kilobucks/month sure.

This exactly sums up my position on housing. I bought 3 years ago in a major metro at exactly the cost of my rent. Somehow prices and rents have continued rising at 8% per year, if the market crashed 50% I’d be under water - otherwise I’m still up. Regardless I’ll have a house 27 years from now.

Now the real crux of it is that I do not have unlimited cash flow to pay peak rent. The previous rental I moved out of has somehow gone up by 85%, a number which would push me into savings or have me calling my boss for a raise.

Shorting housing by renting risks you burning savings or moving to stay out of the bubble. Buying when the market is high is a hedge against the market going higher.

> Now the real crux of it is that I do not have unlimited cash flow to pay peak rent.

Yeah. But you only look at it from the perspective at staying at one place. What if you want or have to move somewhere else, but in the meantime your house lost its value ("marked crashed"). Now you have to pay both rent in the new place as well as your mortgage (that his now way to high for what you have).

In other words: you can't afford to move anywhere anymore, because of your high mortagage. If you had just rented, you would still be flexible and could move whereever your current pay allows.

Don't fall for survivorship bias. Prices rise for a longer time, but in the short times when they fall, they fall much faster.

Mumbai is a good example of rental yield not following property price.

I use the yield to determine if a given property market is speculative or not because rent represents real utility (“yes I would like to live there at that price”)

Beijing rental yield is 1.5% - 2% now officially, it is probably less in reality. Shanghai is around 3%.

China and India probably share similar low rent yields in cities with more speculative real estate markets.

Interesting, I thought yields should be 7% of capital allocated. Otherwise put it in the stock market. This might mean that 2% yield means leverage, if you borrowed 83.34% of purchase price to buy a property and put in 16.66% of your own money then I guess an allowed 2% yield translates I to 7% yield on the capital you deployed. Provided interest on the loan was 1%...this no doubt contributes to Evergrande potential defaulting.

The Chinese stock market has way too much insider trading for it to be considered a reliable source of investment, unless you have inside information. Your only option to wealth building is to start a company or buy a house.

Rental yield in Mumbai: 2-3%

https://www.commonfloor.com/guide/price-rent-ratio-grows-in-...

This is interesting. Can you elaborate about Mumbai?