Over the last few weeks, I have had two clients, quite seriously, tell me that they thought that capitalism was coming to an end. Their views were formulated because of the way that the major stock markets around the world have performed over the last two years and highlighted by the recent events relating to Enron and WorldCom.

In some ways, I can understand their feelings as it appears that almost everyone has got into the habit of looking for bad or disappointing news…any bad or disappointing news whether it is economically based or not…and selling the market.

Because of this, people have been looking for other vehicles in which to invest, as the low interest rates, currently available from the banks, are not going to be sufficient to provide the return required to achieve goals such as future education costs or retirement.

The property boom…

However, these low interest rates could be used to purchase property. Thus, fuelled by skillful marketing, telling them how much rental could be achieved as well as capital growth, many people have been buying houses and apartments, whether it be in Europe, North America or Australia. Like all markets, when there are lots of buyers but not too many sellers the market boomed. Annual double-digit growth has become common place, something that stock market investors could only dream of, as they had seen double-digit losses over the last two years.

As these people boasted of their gains and also the rental returns that they had been promised, even more people entered the market and more companies were set up very happily to provide for their dreams. The success of the Property Show held in Dubai earlier this year is testament to that. However, at about the same time, the market had become saturated. I remember talking to a well-known property consultant at the time, who privately told me that "the horse has bolted" or that people buying now had missed the market.

Over the past few weeks also, I have met three clients who have purchased properties in places as far apart as the UK, Spain and Australia. Each has told me that the rental they had been promised by the agents when they purchased was now only a pipe dream and they would be very happy just to be able to rent their property.

Interest rates will rise…

To make matters worse, there is little doubt that interest rates will rise everywhere from the UK to Australia. The Bank of England has even made a statement recently warning that a fall in house prices is almost inevitable due to the "overheating market" and it is "a moment for considerable caution" for both borrowers and lenders. This is hardly surprising as individuals in the UK are borrowing more now as a proportion of their incomes than they were at the time of the last "property crash" in 1989 and so many will have difficulty meeting increased loan repayments, as salaries are unlikely to rise greatly, if at all, with inflation so low.

Of course, any rise in interest rates is unlikely to help the stock market either and with the nervousness abounding with regard to the political situation around the world and the announcement of a fall in profits from a major company affecting the entire market perhaps my two clients are right, perhaps the world, as we know it, is coming to an end.

So it doesn't matter…

If this is the case it doesn't matter what you do or where you invest.

So you may as well get into the stock market, as we know this is at a low whereas the property market is at a high and, of course, the trick in making money is to get in early. History has shown us that when the market turns, the major rise comes in the first month.

I predicted at the beginning of this year that I thought things would improve by the last quarter. I may still be right, or I may be wrong but there has only been one period this century when markets have fallen three years in a row and that was in the 1920s during the Great Depression and things are certainly not that bad.

In fact, some areas have continued to show good returns throughout the period and investors in the emerging markets and Eastern Europe have seen extremely good growth, as have investors in South Korea, that I mentioned as an interesting investment at the beginning of this year.
However, all these sectors are for the more adventurous among you.

The U.S. market is showing the green shots of a recovery, the UK also continues to be buoyant and even Japan seems to heave reached the bottom of the recession, according to the Bank of Japan. Thus, an investment in one or more of the major markets should see good returns over the mid-term, once investor confidence returns. In the meantime others among you may prefer a good, well established hedge fund investing in long/short equities which might be the answer until the situation is clearer.

Returns will be lower…

Do not expect the returns that you were getting a few years ago. Warren Buffet, the financial guru, for instance, thinks a return of six per cent would be good. Alth-ough this does not sound wonderful, it is three times the rate of inflation in both the United States and most west European countries, which equates to the same ratio of return to inflation of a few years back.

So, I do not think the world is coming to an end, I just think that we have to get used to a new realism in the level of returns that can be expected.

The author is the Head of Reti-rement and Relocation, Towry Law International, Dubai.