Tuesday, 6 November 2007

Tulips, Volcanoes and Fireworks

It’s like being stranded on a volcano, and knowing it’s due to erupt. From my window all I can see are enormous, glowing volcanoes, spewing lava in the air. Yes, I’m being melodramatic, and I am feeling insecure, but that oncoming property crash is beginning to pose a threat.

The situation is similar to tulip fever in 17th century Holland. Everybody invested in tulips. Speculators collected new bulbs, which sold for huge amounts of money. Stock market beginners invested in what was universally believed to be a solid gold opportunity. Money got silly. Profits were huge. But then consumers grew bored of tulips; crops could fail, and too many bulbs were planted – this wasn’t a good way to invest. Many dabblers were ruined when the bottom fell out.

It’s like that with buy to let. The flats are over abundant, and rotten. Many financial novices believed they had discovered an opportunity to get rich quick, and if banks were unsupportive of their ambitions, they even borrowed money from family, who will also be hit.

How will it affect me? I can’t avoid it, and I don’t even own my flat: I just live in the type of property that’s ripe for a tumble. Buy to let newbuilds in areas crammed with more of the same might plummet in price, bankrupting the owners. That’s not the irrational voice of doom talking, but the prediction of many staid financial publications.

Landlords can just about cover the mortgage with rents, but rely on equity for a profit. Tenants have spotted a shift in power relations, and are bargaining prices down, interest rates have risen, and nobody really wants to live in a newbuild flat themselves. In buildings like Dovecot Towers (and its neighbour - Shoebox Mansions) there are many empty flats in amongst the building sites, where even more tiny, one bed, newbuilds are being constructed as I write, bought off plan by investors.

My landlord seems to be in it for the long term, and could avoid negative equity by keeping his nerve. Then again, he might sell the flat (my home) and get out while the going’s good.

Meanwhile, scallies have been launching fireworks at Dovecot Towers. The flashes and whizz-bangs grew too close for comfort, and another talking-heads-over-the-balcony tenants meeting was spontaneously convened. Thumping Techno Boy ensured that police were called (they never arrived) and we calmed down a lady who thought a bomb had exploded when a rocket hit her window – she’s from Iraq, and was terrified. Other residents wandered around spotting and collecting evidence.

Local lads have decided that we in Dovecot Towers are the enemy. They are convinced we’re rich and that our homes are luxurious. They seem to be aiming rockets at the balconies, trying to land fireworks through the open door, targeting tenants relaxing in the lounge.

How little they know. We are buy to let tenants, awaiting the eruption, and I live in a house made of tulips. The idea of a being hit by flaming, heavily symbolic ordinance, whilst living in a laboured analogy really is the least of my problems.

2 comments:

Single Mother on the Verge said...

Well done on your win and guardian mention. Did you get to the awards?

Smov x

Dave said...

Hi RG. I'm puzzled - why does a property crash worry you? You are probably renting at about 4% of the present sale asking price. If property does crash, won't you be well placed to buy at the mortgage level that you are renting now? Won't that help you?

Nice blog, and Happy Christmas. Nice article in yesteday's Guardian

For a completely different view try http://agentsdiary.blogspot.com

SA has very little belief in himself or his profession but like you has an interesting point of view.

20 December 2007