It was 2005 and property prices in London, England, had risen to heights never seen in North America. For one million dollars U.S., you could hardly buy a flat in London.
I happened to be in London that summer surveying the real estate market and people’s attitudes towards the economy and where prices were headed. This brings me to my taxi bicycle story that veteran PROFIT CONFIDENTIAL readers will be familiar with.
In central London, where traffic is congested and the streets narrow, taxi bicyclists are the norm. Picture a low bicycle pulling a two person, rectangular, fabric-sided caboose on wheels and you have taxi bicycle. You’ll find many of these in New York around Central Park.
One evening, I was taking a taxi bicycle back to the hotel after dinner and I struck up a conversation with a cyclist, an entrepreneurial young man in his late 20s. I brought up the booming London real estate market and he was quick to add his thoughts.
“London property prices go up 10% every year like clockwork, everyone knows that.” The young man already owned two flats just outside central London and was planning to close on his third investment property in the next week.
“How do you get financing?” I asked.
The reply came, “Banks are easy to borrow money from for London real estate because they know it keeps going up.” The more I tried to explain to the young man about the ups and downs of real estate and that he was too young in his career (as an aspiring Donald Trump) to be familiar enough with real estate cycles, the less he would listen. While it may not be scientific, at that point, combined with other talk I was hearing in London, I became convinced that the real estate market in London had become a bubble just like many cities in North America.
This morning, the Bank of England slashed its forecast for economic growth in the United Kingdom again, as jobless benefit claims hit a record not seen in 16 years. Unemployment in the U.K. has now risen six straight months in a row. One report I read said that the fallout from the United States subprime mess has cost U.K. banks over $200 billion and over 20,000 jobs. As for the property market, it is the worst it has been in almost two decades.
I often wonder what happened to that taxi bicyclist. He was a casualty of the enticing London property boom… likely one of thousands who got financially hurt as the bubble became a bust.
Tomorrow, a great story for you on how our own real estate market is faring and the newest players in the North American real estate market. You’ll be surprised.