April 16, 2004

By The Independent

London - An investment guru derided for predicting the dotcom bubble would burst cast his gaze on the property market this week and said British house prices were set for a crash that could drop values by almost a third.

Tony Dye, whose prediction of a messy end to the dotcom era earned him the sobriquet Dr Doom, accused lenders of fuelling an overheated housing market and said buyers were being driven by a herd mentality in the mistaken belief that prices could only rise.

Dye expected the value of houses in the UK to fall by 30 percent in real terms over the next five years as the market was flooded with homes by owners seeking to cut their losses.

The gloomy forecast came as government figures showed that prices in the UK fell by 1 percent in February and the annual rate of increase rose by just

0.1 percent to 9.7 percent.

Dye said: "I think we have reached the point where the rises are no longer sustainable and correction is likely to be fairly dramatic - about as bad in real terms as the crash in the 1980s.

"It is going to be distressing for those who have bought in recent months and are likely to find themselves trapped in negative equity ... people have been lured into borrowing beyond their means."

He said: "People seem to believe that property prices can only rise but that is contrary to the cyclical nature of these things. When there has been a rise of this scale it is not followed by a soft landing. That is not how it happens."

Durlacher, an investment bank, and Capital Economics, a consultancy, have issued similar warnings.

Lenders rejected Dye's claims, reiterating the central bank's analysis that low interest rates, high employment and a housing shortage precluded a disaster.

David Bitner of Bradford & Bingley Marketplace said: "The chance of house prices falling are less than 5 percent. There is an argument for saying things have got ahead of themselves but the general economic situation remains good."