Deflation is a risk for landlords who have large debts.  Rent falls and mortgages grow in real terms.

Is it a real threat in the short term?  Yes.  The very short term.  I reckon we will have 2 quarters of deflation max and we probably will not notice them.  The good thing is deflation means the government needs to print money!

Now they do not actually print money, they just add another ledger at the Bank of England, credit it with a figure they like (I wish I could do this myself!) and then get buying.

The bank will buy mortgage debts owned by the bank and then the theory is the banks will lend this new money.  Can I see them lending out this money?  Not sure.

But if they do we will see inflation come back and if they get it right we should all go back to normal conditions and we will look back at the last 12 months and go: "WHAT WAS THAT YEAR ALL ABOUT THEN!"

If they get it wrong then the 2^nd half of 2009 is going to be tough.  I cannot see it getting worse than what we are currently going through but normality will not be restored. 

I feel they will get it right.  We are in a time where relying on your gut instinct is really only the reliable tools we have.  And I think we will come through this.

So what does this mean for property investors.  All the professional property investors know what time this is - buying time!  I just hope there is enough stock of properties coming on to the market.

Speak soon.

 

Ajay

 

Posted on: 13th Jan 2009