Hi all,
Does it make sense to compare real estate and stocks based on their multiples (rent for RE, earnings for stocks)?
Is it structurally wrong to do so?
Background of this question:
I'm based in Munich, Germany. Rental multiples here are around 42 currently, i.e. purchase prices equal 42 times annual rent (excl. utilities). According to some studies (UBS), this market is currently the most overvalued / at risk of a bubble market in the world, coming in even before Canada.
I wonder why people buy here instead of just investing in index funds - Vanguard world trades at 20-21 P/E, is better diversified, comes with very low transaction cost, has no ongoing depreciation (earnings are net yields, no additional maintenance etc required).
Is it wrong to even compare P/E across stocks and real estate?
Do you compare these two when deciding on stocks vs RE investments?