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Succesful investment decisions are not necessarily easy. Firstly, you need to distinguish fact from fantasy, then you look for trend changes. This inevitably means going against popular opinion. Take the current outpourings about residential property, particularly in the South East.
Newspapers have been full of stories about rising prices. Generally, the conclusion that the trend swill continue for several years before it ends, leaves the reader free to choose whether or not to join the party. Yet the arguments seem vaguely reminiscent of previous views on other subjects. Do you remember how the Japanese stock market was going to rise to 60,000 (published in 1989) or the emerging markets advice of the mid 1990's, or the new economy story? In each case, analysts invented reasons why the trend should continue.
I have just read the agents' advertisements in a local newpaper in an affluent commuter area of the South East. Rental values are clearly falling - "Reduced!" and "Available immediately!" stare out of the pages. One agent lists 12 rental properties, 7 available immediately (i.e. empty, earning nothing for the owner) and 4 more with vacancy dates within the month. These are early signs of distress in the letting market.
The reason is that investors have rushed after buy-to-let mortgages, bidding property prices up in the process. This is one end of the see-saw. The other is the surplus supply of rental properties thereby created. Since most new landlords are heavily geared - using borrowed money rather than their own equity - there will be serious financial distress when there are insufficient tenants to enable those mortgages to be paid.
The signs are in the see-saw, not the extensive arguments about interest rates and economic growth.
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