Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Thursday, November 09, 2006

Prices And Value - A Wake Up Call

Original posting: 17th April, 2005

I do not follow the logic that rising property prices (values?) is a good thing. I find it quite depressing and in the long term (not so long really) I foresee a total crash. The only winners can be the banks and building societies. If the buyer overextends himself then the loss of the house by repossession and then it’s sale at current market prices will make a tidy profit for doing nothing and there are no costs to the lender. The original purchaser/defaulter is liable for all these costs.

How does this really work? The current (any) Government will ultimately make a huge gain by taxation. One day the mismatch of any increase in the inheritance tax threshold being outstripped by rising values of property will be recognised for what it is. The tax is still set at 40% and more and more people are being caught in the trap and don’t seem to be aware of it.

Council tax band re-evaluation for those who don’t move will incur increased cost without necessarily having any increase in income to pay for it. People have a house that technically is worth so much more today than yesterday, yet there is no monetary exchange, just an appreciation in the ‘book‘ value and everyone seems to be cashing in. The only loser is the owner.

Any move to a new house will cost more as the new house has gone up in value so there is still no substantial actual monetary gain. Only technically on paper. Yet all the running costs go up: heating, power demands etc of a bigger property, council tax, general maintenance costs of buildings and land and internal fittings (curtains, carpets, furniture and the rest). The funds needed to do this initially may not seem excessive, but the amount realised on the sale of the old house will soon run out. But the 'adjusted' level of outgoings may appear to remain the same, just at the higher level.

It seems unrealistic to have an old car outside an expensive looking house. Maybe two new cars instead “looks“ better. Image is everything. People are getting poorer by the day and they seem happy about it. Bizarre!

It’s curious that even though cars depreciate in value at an enormous rate, the house value appreciation still seems to fund the purchase of new cars. Why are cars still seen as the ultimate status symbol? Of a winner! Why do cars lose value so quickly? Perhaps it’s because they are sold at such an enormous profit to begin with, but don't forget the Government's immediate cut in the VAT which cannot be recovered by the private buyer. The value part in value added tax is rather a cynical term, isn't it? So, is it the personal value attributed to the purchase or financial value for the UK government? Buy a new car one minute and sell it a minute later (literally) to see what happens!

This apparent buoyancy paradoxically fuels the vacuous, yet nebulous, credit boom. Sad and frightening.