sabola

To bring down house prices in UK. Easy if you can ask the government to: 1. Tax of non-resident for capital gain: Do you know that a foriegn identity, a person or a company, DON'T need to pay capital gain tax even if it makes millions from properties? UK is the ONLY country in the world which treats foreigners with the nicest piece of cake! I don't understand why foreigners don't pay capital gain tax. This is one of the reasons why London prices are so high. 2. Abolish the non-domicile tax advantage: Non-domicile is a person who wasn't born in UK and will not be buried in UK. For this type of people they can live in UK without paying taxes on their world wide assets. That means if you are a non-domicile person living in UK, you don't need to pay any tax on the gains or income from overseas business or assets. UK is one of the tax havens in the world. Why foreigners are paying millions to pay a small house in London? Simply because they can enjoy tax free benefit for all the money they make overseas. If the government is going to abolish non-domicile tax advantage, foreigners will run. Lots of houses and flats will be put on the market for sale. A crash will be guaranteed!! It's almost hopeless to ask the government to release more land. People in this country like to have country side. For those we have houses don't like to see prices come down. For those who owe land don't want to release more land. This is one of the very few developed countries with such a huge control of supply of land. The country is lacking urban planning. The supply of housing doesn't cope with the increase in population. Government is to be blamed. To change that? Very difficult! Perhaps, it's easier for the labour government to change those two tax rules I mentioned. A house price crash guaranteed.

The world wide housing bubble was created by ultra low interest rate which set by the Fed and other central bank to save the whole world from recession after the last tech bubble crash. A bad recession has been delayed for a good few years. In the end, it's going to come our way. Housing bubble is worse than tech bubble as it hurts more people and consumers. Interest rate in Europe is going to rise to curb inflation. If they over do it, it's going to cause a recession. If they under do it, inflation will rise. In the end, recession is unavoidable!! With a few stong economic numbers from UK, the next interest rate move is UP, not down. (Do you think that is going to help your property prices to rise?) Sterling pounds was the weak animal the last 6 months because the market expected BOE to cut interest rate. The last two week, Sterling is a sure winner because the FX market expected a rise in interest rate instead of a cut. The pump of energy from BOE last August(cutting interest rate) support a short rebound in London market. With Bonus dries up and most smart investors now go overseas, the hope of a revival of big rise in house prices is nah... If you run a chart for house prices after inflation, that is real house prices, it rises just slightly over inflation. In a way, other than the fact that a house is your home, it is a good hedge against inflation. What about if there is no inflation but deflation? Forget about investment in properties! It sinks! When all the news are good, it's time to sell. Take profit. You don't want to be the last person who left in the party. Like Buffet said that the housing and commodities bubbles are like a fairy tale story. Everybody is enjoying the party and the party is getting bigger and bigger. Once the clock strikes 12:00 mid-night. The carriage will turn back into pumpkin. You don't want to be a pumpkin, don't you?

Of course every market is different from one another. However, there are two rules of thumb for property investment: 1. Affordability 2. PE ratio: Rental yield. In a bubbly market, nobody cares about them. Market does overshoot and in the end, it adjusts. The process could be painful! I understand what you talked about HK market. In fact, I bought again in 2003 when I saw my chart of affordability sending out buying signal. That means the prices fell SO Much that affordability was TOO GOOD and rental yield went to a good level too. New flats or old flats. Doesn't matter. who cares. Prices jumped all across the boards the end of 2003. HK proerty prices jumped over 30% from the rock bottom in 2003 in a year. I bought a pre-sale like you mentioned and sold it within two months with 20% rise. 200,000 pounds profit. I sold the unit even before they built it. I believe Hong Kong is now in a new 18 years cycle. Starting from 2003. It's on a long term upward trend. Don't see any bubble yet as most people were burnt and still very cautious when prices climb too fast. I don't see any big gains in UK the next 5 years. 3 years later, there could be a very bad recession. Don't help the market to recover either! Prices in Calgary, Canada are rising fast. I bought a few properties there last year and all of them went up over 50%. Those I bought in 2003, have doubled! The affordability and PE ratio told me that there are still more rooms in Calgary market. So I stay long. For London and other places in UK...nah.......How many % gain you expect from this extremely overvalued market??????? When everybody buying property, it's the end of the market. Believe it or not. There is natural adjustment. Prices have to come down in UK to meet affordability. Properties are different from stocks. A company's profit can grow year after year. But property prices can't keep going up without the support of fundamental. Prices overshoot the last few years and it has to come back equilibrium!! I'm happy with discuss further in the main thread. How do we do it? Or somebody can help put the link of this thread to the other thread?

Fixed mortgage rate usually is affected by bond market/fixed income. Financial market is no longer a striaght forward borrow and lending and saving equal sum. It's has become ever SO complicated with derivative and options trading. Central bank has the power to tight the liquidity in system by rising interest rate. With cost of borrowing rising /rising interest rate, financal instutitions will have to charge more to lend. Because it costs them more to borrow for their lending. liquidity is related to interest rate movement. In fact, Central bank has big power on monetary policy. Rising interest rate can slow down an economy. Over doing it can cause a recession. Last August, B of England cut interest rate because they were afraid of a sharp slow down and a crash in house prices. Cutting interest rate to ease the money market/fixed income. Injecting more liquidity in the market. That means, if there are signs of economic weakness, BOE will cut interest rate to prevent the economy falling into recession. Bond yield has been low. 10 year UK bond yield@4.6%. UK fixed mortgage are rather short term comparing to the US. The UK fixed mortgage rate is more related to the short term UK bonds/gilt. Somehow investors believe there is no real threat of inflation and we are expecting inflation within the range of 2 to 3%. There is no fear in the market to push bond yield higher. With Asian central banks and pension funds keep buying US bonds, it keeps the US bonds yield low and that indirectly affects the globe bond market as well. Recently global bond yield moves up, fixed mortgage rate also edges higher.

Also, with the rebounce this spring, it's time to get out. Not to get in. Like 1999 in Hong Kong, there was a rebounce in the spring after 1997 crash. In the end, it proved that was a rebounce and was a small hole to escape the ultimate disaster! These days, investors are looking world wide. Buy to letters are selling up and buying world wide. Help fuel global bubble. I don't see any gas left in the tank for UK house prices!

I guess Astos represents one group of people who believes in ''prices always go up'' myth. I'm a property investor. Have been in the business since 1990. I first invested in Hong Kong and sold my last property at the peak of 1997. Prices crashed. Down average 65% to 85%(depending areas) Now, it's still 45% below the peak. 10 years on. A lot of friends are still in negative equity! Don't under-estimate how a price crash can destroy your life!!! In 1997, I started to invest in London property and sold my last property in 2003. I'm renting right now. What goes up, must come down. Housing unlike stocks. In the end, the purpose of housing is for people to live in. Not for flipping or speculation. If there is PE ratio for stocks, there is also PE ratio for Property. That is the rental return. The most important indicator for property is affordability. We have to afford to buy or afford to rent. Anytime in history, when the house prices are unaffordable, it HAS TO come down. Natural adjustment. There is no exception. When I was in Hong Kong in 1997. Everybody laughed at me to sell up. They said Hong Kong was different from Japan. It WILL NOT fall. Look at what happened????? Since 2003, I bought properties in Calgary, Alberta, Canada(oil city). Prices was SO CHEAP and rental yield was good. Prices have double since then. Another bubble in the making! Now that the property bubble is growing world wide. With ultra low interest rate(after tech bubble) and mania behavior of other speculative markets, sure there will be a global property prices melt down. When? I have no clue! At the height of this property bubble cycle, better to wait and see. You are not going to lose out much when prices are already so high in England. If you jump in now, the price to pay is high. Look at those speculators in Hong Kong? Of course, lots of people think that England is different from Hong Kong. Same as those in Hong Kong said once said that they were different from Japan! To bring the house price back to neutral.(affordable). prices have to come down at least 30% in England. Last time round, I said: 60% for Hong Kong. Everybody thought I was nuts. In the end, it went down 65% to 85%. When it rises, it overshoot. When it comes down, it overshoot too. I don't see the crash in England come right the way. Because lots of people are still like Astos supporting the market. In a long term downward trend, there are rebounces. The same applies to upward trend, there are corrections. I believe property in England is in a long term downward trend. According the 18 years property cycle theory, last peak was 1989. The next peak should be 2007 or 2008. A crash will happen more likely in 2008. However, I don't see prices going up the next two year. Prices will be in a range with 5 to 10% up and down. And it will come down with recession! Because if prices don't go up from now on and just staying there, lots of speculators will sell up or give up after years of negative cash flow with their rental. And the world recession very likely will come between 2008 to 2010. So, better to wait and not get yourself into debt. One mistake is for life. I never expected to buy and sell like I did. But prices in Hong Kong and London both rose to a level I considered unreasonable. I had to sell up and move on. That I invested in Calgary and didn't expect such a big increase. If prices continue to rise out of control, I will consider to sell up also. I planned to be a long term investor, but this world wide property bubble is pushing me out of it. I'm looking to cashing in and start to buy bonds later in the year and get ready for the next recession!