The reason I like Property Secrets is that we can look at property investment in a +ve or -ive light and not be censored, and as such I feel i must start a thread on the UK property market with a negative view. I am of the thinking that there will be economic pain ahead in the UK not just next year 2008 when there will be a small crash but rather a long term decline, just like we are seeing the beginnings of in the USA, I have spent alot of time looking at data and considering the reasoning of the bullish and bearish perspective on UK property and I have come to the conclusion that there will not be a soft landing in the USA or in Ireland or UK. When the last big crash occured in 1988 average household debt vs income after tax was approx 90% and is remembered as a time of huge hikes in interest rates. Prior to the Japanese crash household debt vs income after tax was 155% approx. Now in the UK we have the situation where we have 160%, scary stuff, but i seem to recall that the situation is even worse in Ireland. Essentially what it means is that the Government will not increase interest rates as far as 1988 because the situation is so much worse, further increases in interest rates will cause too much pain - mortgage defaulting, bankruptcy and negative equity for millions. It is too late for a sharp correction, instead we are heading for Japanese style defationary situation lasting potentially just as long, a decade - perhaps far worse since our manufacturing base is practically non existant. After a point the BOE will allow inflation to take hold - they will have no choice but to errode the debt with inflation. Eventually they may reduce interest rates to stimulate growth with free money, just as they did in Japan, however it wont make any difference as to how low the interest rates go since the average Brit will not borrow / cannot borrow - will be maxed out. Enter slow deflation - asset prices fall, recession takes hold. Those who followed the masses into speculative markets such as Bulgaria, Spain, France and all the other boom countries / cities, buying on leveraged monies from UK properties will exit at big losses. I hate to be the ney sayer here "scaremonger" but this is not the time to be chasing the big boom investments because they could easily turn into big falls over the next few years. A crash in the USA + Ireland + UK will cause a crash in every speculative high profile property market out there. As for the "foolish" speculators, I think for the most part Germany, Hungary, Sweden amongst others will avoid the pain due to underlying strength or purely due to low prices and an absence of a speculative boom; whereas Spain, Latvia, Bulgaria and Romania, Turkey etc will suffer. Property crashes always preceed recessions and the biggest sign of a property crash and subsequent recession is firstly credit tightening and subsequently the newspapers finally seeing the truth and finally finding the courage to print the truth. Its all down to the AMOUNT of negative press. Wages are growing at 4.5% and REAL inflation is over 7%, -the party has to end sometime. Gordon Brown is desperate to keep the property party going, giving tax breaks to Landlords and finding more inventive ways to get first time buyers onto the property ladder. After all, he cant allow a crash prior to his rise to PM. The longer it takes the harder it will be.

I have the upmost respect for Property secrets crew and I know they have shown good predictive reasoning in the past, - I just think its time for caution.

surely if the emerging property markets in the boom countries are supported by locals buying, as opposed to just foreign investors, then there is likely to be a house price crash there even if there is one in the UK. Property Secrets seems to look for investments where there will be local demand.

"then there is likely to be a house price crash there even if there is one in the UK" thats supposed to read as 'less likely'

Agreed, if there is strong demand and high liquidity from local population then the market in question will be insulated to some extent. However in times of difficulty, recession causes international business to retreat to home territory, and they will reduce or stop investing abroad; if people stop buying goods produced in these countries, - growth will falter and there will be job losses - especially in those countries dependent on manufacturing jobs. Much depends on how Germany copes this time, since they have no huge property bubble to burst. Will Germany withstand a slump in sales of its goods from the crash countries? Can demand from other countries take up the slack? I personally believe they can, we have India and China, Russia all of whom now want luxuary goods produced in Germany which is why im looking to where Germany and Russia and China is invested in terms of the new EU countries and is why I opted for Hungary. Dont get me wrong, ANY country heavily dependent on manufacturing will suffer, it is about the extent of the pain and other factors. As I said Germany doesnt have to worry about property debt like we do.

Thank you for this post Richard. It is refreshing to hear a bearish voice around here. Can anyone persuade me that Romania ISN'T a speculative market? I'm getting increasingly nervous about it.

I would expect if there was a global downturn that it would be the emerging markets who get hit hardest. Emerging economies do better in strong economic times and in weak economic times they perform far worse. Still, if you invest in the EU (with Romania) you do have a lot of things in favour of the economy already. I would still say it is a risky investment depdending on your source of funding. My view if you've got the cash and its not a significant percentage of your portfolio then go for it. If you need to borrow and rely on rental income to satisfy your mortgage debt then best to avoid.

Minsk As you are aware and to concur with Bretts comment.All markets are risky and Romania (which has a range of markets )is undoubtly risker than say UK with its range of markets. However as with all markets some research is required and this includes at least a couple of visits to the market beforehand, plus sites like PS,visits to property shows , papers etc. Some facts re Romania; (+) unemployment approx 6% (causing some restriction on growth currently) (+)EU is putting money into country now, with targets to be met (+)population of approx 25m, young people(

Thanks for this thought. I am caught in the middle of this, between investing in Germany (extremely low risk, but a market which requires patience) and CEE. The Czech and Slovak Reps look to be the safest bet in CEE although even here I am hesitant to be too highly geared. I have took my first 3 BTLs in good central Berlin areas. If global real estate does well, I think Romania, Czech and Slovak deals are the ones to go for. Perhaps Poland has already had it's lions share of growth, and the Baltic states look too speculative and in danger of overheating

I think Richard is right and that it is definitely worth considering a few strategies here to ensure that if there is a slow fall in house values like Japan that we property investors are able to survive and take advantage of it. I think cash will be king and those with a lot of low yielding properties will be in trouble. We have a portfolio of student houses with relatively high yields. But we raised a large mortgage on the family house to purchase. Our strategy is to have an offset account for this mortgage, the amount of cash in the offset reduces the mortgage and interest payments. The payments increase of course if we take any out. This cash is available at short notice if we need it. Just like a bank account. We fixed the student house mortgages for ten years so no surprises there in future, and are now investing wisely to get them ship shape (new boilers and electrics where suspect). We are also taking out as much of the rising equity as we can by re mortgaging regularly and putting it back into the offset account. We don't believe now it the time to buy a lot more. As house prices fall over the coming years, higher yields will be available and so we will be in a position to purchase at the right time in the cycle. We are keeping an eye out for high yielding properties or even businesses now, but are keen to build up that cash reserve as much as possible so that we are prepared for either a continuation of the boom, or a drop in values. We have a strategy for overseas purchase, but only where we can be hands on the ground to get the best property and investments and not through middle men. What strategies or plan B's do others have?