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Old 23.11.2020, 08:12
EPMike EPMike is offline
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

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Looking at it from a purely business viewpoint, the logic makes sense - nowhere else would you be able to rent an item for 1.75% of its value. But housing is a bit different due to the limited supply, so competition is limited and you could argue it isn't a normal market so pure market rates can't apply.

I can't see how it could be implemented without causing chaos if lots of landlords suddenly try to put rates up that much.

Also perhaps this impact is only because property prices are too high, but the result of this decision is likely to just be even higher prices!
Indeed, the mere fact that mortgages don't need to be repaid maket it already quite a distorted market. Looking at the ROI on invested capital (vs. purchase price) gives a much better picture, albeit with a 3-4x leverage.

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London rents have an appalling net ROI, probably sub 2% but then prices may fall significantly.

It's probably to allow capital values to fall, rather than anything else, most people pay as much as they can in Rent already.
I am not sure the current decision would affect purchase prices (if that is what you meant by "allowing capital values to fall").
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