It means for speculators they're making a killing but for normal rental property investors it's not good at all.
All investors are speculators!
If you don't have a macro bet or value-add you are going to make far less than an index fund. You
must speculate. That is the nature of investment.
Artificially inflated why ? By whom ? Overpriced relative to what ?
Personally, I'm uncomfortable with Vancouver and Toronto valuations. Same with Seattle, NYC, San Francisco, Portland.
Let's use the simple relationship that cap rate = equity cost of capital - growth rate
As equity cost of capital, use the 1-year TSX ~10% (
http://quote.morningstar.ca/QuickTa...rf.aspx?t=0P000072B9®ion=CAN&culture=en-CA). This isn't 100% accurate because real estate is "so-called less risky" than the TSX.
Now, let's solve for growth rate using a little algebra. 3% = 10% - growth rate. So investing in Vancouver betting on a 7% growth rate. Sounds roughly accurate to mania going on there right now.
To provide some context, buying a 3% cap is really going to turn out to be closer to 2.5% after cyclicals and you drill down to earnings and paying interest expense which is a real cost, so what you are doing is buying at a P/E of 40 (see my comment above cap rates do not equal yield). So... comparitively, you are buying Twitter. Real estate less risky than the TSX?