Or what someone will loan you to pay for it. Money is close to free at the moment, once that changes, prices will adjust accordingly.
I find this post interesting. Its not just how properties are valued.
I was looking at some Polish property websites the other day and decided to play around with their "mortgage calculators", it seemed on average that to buy a house or apartment in the region of 300,000 PLN, the maximum they would lend you was 154,000 PLN, only 50% of the cost.
My conclusion was that the banks are still unwilling to take even the minutist risk at all.
This Summer, the EU Banks, UK and USA are supposed to be coming up with proposals to regulate all banks. This will involve, setting a limit to the amounts of liquidity that these banks have to hold at all times to protect them from any future crises.
The percentage of ther liquidity has still not been decided so in the meantime, the banks are only investing in government bonds and increasing the interest rates to existing customers to build up as much cash as possible to make sure that they have adequate reserves to meet any regulations that may be brought in.
A prime example of this is the UK. Many billions of pounds of tax payers money was used to bail out the Royal Bank of Scotland and yet this bank is constantly being criticised for failing to lend to small business's, despite so called pressure from the British government which holds a 70% stake in the bank.
A large number of small business's in the UK who have never been in trouble financially are now having their overdraft facilities withdrawn or having to pay ursuary rates of interest on exisitng loans. The UK government bleats on about "recovery" and as usual, does nothing.
The banks do not seem interested in long term loans, they are so used to making huge amounts in the short term. Credit cards at 26% interest, small loan amounts ie:3,000 - 10,000 PLN and paying huge bonus's and dividents to their shareholders, that, they seem to have lost the plot about what the banks are there for.
Everyone now has to pay for the irresponsible lending/greed of these banks and indeed, to a certain extent, irresponsible borrowers. But, if you offer large amounts of money to people, without checking carefully on their ability to repay, defaults are bound to happen.
The value of property will be governed by the ability to borrow and the supply and demand.