What Sir Isaac Newton can teach us about London’s ludicrous property price bubble

When even the kings of overpriced property, the Candy brothers, start getting worried about London property prices, might it be time for the rest of us to worry too?

A report in today’s Times quotes Nick Candy as saying that “in Mayfair alone there are seven major schemes being developed with over 200 apartments with an average sale price of more than £20 million.”

He isn’t alone in beginning to worry that this so far ludicrously lucrative market might have begun to eat itself. Savills put out a report recently suggesting that “the pipeline of prime schemes across London is entering uncharted territory”.

Then there are the many people quoted in the Sunday Times this week on the same subject. There’s David Austin of Capital A (a financing firm back by the Pears family). He has a “feeling that these flats will be like new cars: buy one and in two years it could depreciate by 20%”. Then there is Michael Marx, head of property firm Development Securities. “By definition”, he says, the price rises of the last few years “cannot continue”.

And there are already signs that the end might be in sight. An estate agent in north London reports that, thanks to the rise in stamp duty and concerns about a mansion tax, “the market for homes over £2m is flatlining, if not in full blown recession”. I really want that to be the case.

Betting against property in most of the UK over the last five years has been a clever thing to do. Betting against it in London really hasn’t been. We all know it isn’t quite right. We all know that a 20-year cycle of falling interest rates has to come to an end at some point, and we know that could be the trigger for some kind of change. But when prices keep rising and rising, it’s hard to be confident.

However, from now on, every time I start thinking to myself that prices might actually go up for ever and I should just get on with it and buy a London flat, I am going to look at this chart in Tim Price’s newsletter:

Isaac Newton and the South Sea Bubble

It shows what happened to poor Isaac Newton in the South Sea bubble. He bought in early and sold out when things look ridiculously expensive (the equivalent of London house owners who sold in 2007 perhaps?). Then, as prices rose and rose and rose he lost confidence in his judgement and bought back in. That was fine for a very short period. Then came the crash. Prices fell back way below the level at which he had bought. Then the level at which he had first sold. And then the level at which he had first bought.

The price of a London house is never going to behave quite like that but it’s still worth printing the chart out and sticking it on your wall for those moments when you have a sudden attack of London price FOMO (fear of missing out).

The final word goes to Marx who says this:  “I’m an experienced jungle watcher, and there’s something going on in the jungle.”