Time to sell out of UK property

Many expatriates in the Middle East and wealthy Arabs have a fortune invested in UK property. Yet we all know that UK property has long run on a boom to slump cycle that extends over about 10 years.

Each time the market booms many commentators come forward - usually those with a vested interest in the market - to offer the bold theory that the cycle is over this time, there is nothing to worry about, and there is nothing as safe as houses.

Absolute rubbish! There has never been a housing boom in the UK which has not been followed by a bust. There never has been and there never will be. All we can be really certain of is that the credulity of investors and short-memories are a feature of the human condition.

Just go back to the early 1990s. London was awash with negative equity, that is to say fools who bought at the top of the market in the late 1980s and then found themselves with homes worth less than they paid for them.

Or go back to the early 1980s which saw a less famous squeeze on house prices. Or go further back to the crash of 1974 which was arguably the worst post-war financial crisis in the UK.

So where are we now? UK house prices have been rising since March 1993. Now would it not be unusual for an 11-year upturn to be followed by a downturn lasting some years. Unless the capitalist business cycle has vanished it has to happen, and the higher things go the harder they fall.

Several top City analysts have predicted falls in UK house prices of 33 to 44% by the end of the decade. That might be a bit tame. Market adjustments usually happen quickly, with a substantial fall in a year to 18 months and then a slow further slide down before a new bottom is reached.

What should a rational investor do in such circumstances? Answer: sell and buy back later!

Interest rates are poised to rise around the world to deal with mounting inflation, and this will put up the cost of mortgage borrowing and throw a spanner in the works of the UK property boom. Confidence will be shattered and prices that bare no relation to the salaries of ordinary people fall substantially.

The trick, surely, is to be a cash buyer in a few years' time when UK house prices are on the floor, or better still to gear-up at the bottom of the cycle.

But most people will feel that having made so much money on UK property that they might as well hang on in case there is some more to be made. Sadly this will prove an expensive error.