Investing SSIAs: The value you obtain when you buy an asset largely dictates the subsequent return. This statement is as true for property as it is for a business, and the stock market is nothing more than a collection of publicly traded businesses.

Let's run the microscope over Irish property first. The fundamental driver of higher property prices is, of course, the growth in personal incomes, driven by the growth in the economy. As people earn more money, they can afford to pay a higher price for that same property.

The interest rate cycle can either act as a headwind or a tailwind. For the 22-year period from 1982 to 2003, interest rates were on a declining trend - albeit interrupted on several occasions - and acted as a strong tailwind for the majority of asset prices, including property prices.

Obviously, as interest rates declined it became cheaper to borrow and easier to pay for rising house prices. No doubt interest rates were too high to start with in 1982 but, nonetheless, interest rates should be seen as the swing factor in valuations and not the fundamental driver.

The accompanying chart shows the growth in the average second-hand house price in Ireland compared to the growth in personal incomes since 1970. The average second-hand house price in 1970 was €7,300 while the average annual personal disposable income at that time was €1,673.

Both series have been rebased to 100 in 1970 for ease of comparison. The excess growth in house prices over the period has undoubtedly been supported by the transition to a lower interest rate environment than existed in 1970.

Despite the progress made over the years, an investor must continually reassess the value on offer in Irish housing today compared to what is on offer elsewhere.

Our starting point must be the rental yield on Irish housing, which currently is a paltry 2.5-3 per cent on average. The claim by many that the low rental yields are not a problem because the capital gains are high is naive at best.

Assuming no change in interest rates from here, the annual return that an investor in Irish housing might expect would be this rental yield plus the growth in average Irish incomes.

With incomes growing at circa 5 per cent per annum this holds out the prospect of an annual return of 7-8 per cent. However, interest rates are unlikely to remain where they are in the medium term. In the second article of this series, we looked at the long-term "real" return over and above inflation that savers normally get on cash deposits, and it worked out at anywhere between 1.5-2 percentage points over inflation at best.

With inflation currently running at circa 2.5-3 per cent in the euro-zone, normalised interest rates should probably now be over 4 per cent. Cautious investors would factor in a return to that level in the medium term.

It is plausible to argue that in such a scenario rental yields on Irish housing too should gravitate back towards 4 per cent in order to compete with cash deposit rates. It may be simple math but such an adjustment in rental yields would necessitate a near 25 per cent correction in the average house price from current levels with the growth in incomes cushioning the decline over time.

The Irish economy may be in great shape but the risk of a sharp fall in Irish house prices surely has to outweigh the modest upside on offer.

The stock market can be looked at in exactly the same light. Let us take a look at companies in the FT 100 index in the UK, which contains many household names such as Barclays, Marks & Spencer, Tesco and BP. We can easily put together a diversified list of these sizeable UK companies that, in aggregate, offer a dividend yield of near 5 per cent.

Similar to the argument on housing, the likely return will be the initial dividend yield of 5 per cent plus the growth in the dividend income. Dividend growth follows earnings growth and earnings in aggregate, like incomes, is likely to grow in line with the economy over time. This is certainly true of the bigger companies that make up the UK FT 100 index.

Assuming economic growth of 4-5 per cent per annum in the UK suggests that a portfolio of such blue-chip companies is capable of delivering an annual return of circa 8-10 per cent. And with interest rates currently at 4.5 per cent in the UK, the threat from further interest rate rises looks modest compared to the Irish situation.

Admittedly, the above valuation argument is simplified but it often helps to keep it simple when trying to identify risk. In next week's article, we will move on to discuss an easy-to-follow approach to selecting high yielding shares in the UK market that offer every chance of delivering better than average returns to investors over time.

This series of articles is being written by Rory Gillen, who manages the Select GV Equity Fund in Merrion Capital and is the course director for the stock market training company Invest Like the Best (www.investlikethebest.com). A copy of all six articles can be obtained by emailing to r.gillen@iltb.ie