The World's Most Expensive Rattrap
By Tom Dyson
January 29, 2007

The floor space measures 77 square feet... not much bigger than a king-size bed... or a large closet.

There are no floorboards. Ripped black garbage bags and bubble wrap cover most of the floor space. The rest is just dusty concrete.  There's a tiny window at the end of the room, but there's so much clutter in front that the light barely makes it through.

The walls are crumbling, the door is stained, and some wooden panels have fallen off their mountings. There's no electricity or heat, either. It smells like a damp basement.

The rattrap I just described is located in one of the most expensive areas of London... a borough called Kensington and Chelsea. It's just a stone's throw from Harrods and Hyde Park. It's the favorite postal code for princes, sheikhs, and oligarchs. In this part of town, every other car you see is either a Rolls Royce or a Bentley.

Last week, this studio apartment went on the market for $335,000... or $4,340 a square foot. The realtor has already received three offers.

London has always been one of the world's hottest real estate markets... but in 2006, things went a little crazy...

A survey by Rightmove says the average price of residential housing in London rose 22% in 2006. But that's just the average of the whole city. If you live in one of the exclusive areas, you did much better. According to another study, house prices in the London Borough of Kensington and Chelsea rose 62% last year.

All in all, 2006 was the best year for London's property market since Margaret Thatcher came to power in 1979.

When I went to London two years ago, people were acting just as crazy as they are today. I remember one banker paying $150,000 for a parking space. I remember all my college buddies rushing to buy houses. They were worried the market would run up even more, and they wanted to get in while they could still afford it.

I didn't say anything, but at the time I thought London property was a terrible investment...  

Then when I went back last summer, everything had changed. Prices had softened and everyone was saying the bubble had burst. Pessimism had taken over. My friends were all complaining. They'd bought with borrowed money, so the 15% decline in average house prices felt like a 50% loss to them. 

At the time, I never would have thought the madness would crank up again... or surpass the levels of 2004... But that's exactly what happened.  

I'm in London right now, so I'll try to figure out where this madness is going, but for now, the point is this...

America feels just like London did in 2005. Every one thinks the housing bubble has burst, and we're about to see a monumental collapse in prices.

But if bears got it wrong in London, who says they aren't wrong about the U.S., too?

Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.

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