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Btls Have Lost The Plot

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When making an investment, people have to choose between income or capital gains (or a combination of the two). They also have to factor in risk in calculating their returns. However you look at it, property seems to be a dead duck.

Income

Income on investment property today does not cover the cost of ownership. This is true no matter how long property has been owned or how much mortgage is owed on the property. A person with a £1m property portfolio that is bringing in £30K is the proud owner of an under performing asset. The only justification for holding an under performing asset is that it offers the prospect of capital gains.

Capital gains

By any rational metrics, UK property prices have overshot massively. The momentum has been sustained by gambling fever within the BTL fraternity and very lax lending rules. The other side of gambling fever is panic. The other side of lax lending is credit tightening. Credit tightening is already evident. The arrival of panic can only be a matter of time.

Risk

UK property has a poor risk profile in spades. Japan has had a property bear market for 17 years. Spain and the US are heading rapidly into property slumps. The UK must now rank as one of the riskiest property markets in the world. It has the most expensive houses and a lopsided economy. The economy is now so geared around property that even static house prices will precipitate a rapid rise in unemployment. There is also a growing risk of tax changes.

The surprising thing is that the BTL fraternity seem determined to sit tight on what is looking increasingly like a disatrous investment. Why is this? I suspect there are a few reasons.

(1) Much of the BTL community are simply not savvy enough to realise what a dog property investment has become.

(2) Many BTL owners will have already spent their paper profits and cannot afford to sell.

(3) Many BTL owners are incapable of making a dispassionate decision when balancing the risk of losing paper profits against tax liabilities.

(4) Many of the BTL community understand some or all of these factors but have lost their nerve. Their heads are now buried firmly in the sand.

When you ask a person why he is investing in a particular product, the logical response is that he is looking for capital gains or income. The stock response from the BTL community is that they are investing 'for the long term'. This says it all.

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With an over-supply of rental property in many parts of the country, a stalling housing market with prices falling in some areas, and a tax hungry Brown eyeing them greedily and licking his lips, I smell blood in the BTL sector.

Some have managed to get out already but the hundreds of thousands of speculative, over-leveraged, johnny-come-latelies who remain are in for one hell of a kicking methinks.

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Some have managed to get out already but the hundreds of thousands of speculative, over-leveraged, johnny-come-latelies who remain are in for one hell of a kicking methinks.

Can I join in......

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