The Property Cycle & Timing the Market

the_property_cycle.jpgTwo expressions that you’ll often hear when you’re buying property are 'The Property Cycle’ and 'Timing the Market'.

The Property Cycle is the rise and fall of capital and rental prices. Timing the Market is buying when prices are near the bottom of the cycle instead of the top.

It’s like filling your car when petrol prices are low – except that you can save many thousands of dollars instead of spare change!

Since property is normally a medium to long-term investment, the question when you’re buying is how long the property cycle lasts, and where the market is at a particular time.

The answer isn’t simple, because the cycle varies according to a range of factors. Understanding and recognising those factors is the key to knowing when to buy.

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TOWN OR COUNTRY?

A key factor when assessing the market cycle whether it’s a capital city or regional market.

In resource-rich regional areas the cycle tends to be short – as little as two or three years – due to local infrastructure and economic development.

During a downturn, capital values and rents can drop as much as 25 or 30 percent!

On the other hand, the market in a state capital or major regional city generally takes 7–10 years to complete its cycle.

Price fluctuations are smaller – capital values drop by only around 15 percent – and rents rarely decline, even when the capital market is falling. Over the past 24 months for example we have seen some massive price growth across the Sydney market.

So how do can you tell when a market has reached the bottom of its cycle (often called “6pm on the Property Clock”)? The answer is that you can’t, until after the market has started rising again.

It’s important know what factors drive the market in areas you’re considering, and when those drivers are likely to come into play. You can buy ahead of a price boom in a particular area, but that requires knowledge of the factors that will increase demand for housing there.

Large-scale infrastructure projects, transport links, educational institutions and hospitals are usually indicators of future economic growth. They attract more people to the area, in turn creating demand for housing and driving up capital and renal prices.

Of course not all planned projects go ahead, but if several major projects in a range of industries are in the pipeline, then chances are that some of them will proceed.

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MICRO MARKETS

Another important factor is ‘micro markets – locations that buck the trend of their surroundings.

While the property values and rent prices for a town, city, state or the entire country might show an overall increase, some locations or property types may be declining due to oversupply compared to buyer demand.

And vice-versa.

Not all properties in a particular street have the same attraction to buyers. Spotting those mavericks is important when you’re in the property market!

RISK = RETURN

When it comes to the property cycle, there’s generally less risk investing in capital cities and major regional centres, given that property should be considered as a medium to long-term investment.

Big profits can be made by buying in a small location that’s about to boom, but the risk is also bigger.

Mining towns are classic cases. Property values and rent returns skyrocket for a short period while mining is underway, but then they bust after the resource has been extracted.

Whatever your investment strategy, Aus Property Professionals reduces the risk factor by thoroughly researching the property market – not only the property cycle, but all of the factors that you need to consider before buying.

LLOYD EDGE
Director, Aus Property Professionals

 

Lloyd Edge holds real estate licences in NSW and Queensland. He has a thorough knowledge of the Sydney and Brisbane property markets as well as key regional areas in both states. Although he's a fully qualified real estate agent, Lloyd only works on behalf of you, the buyer.

Book a free Aus Property Professionals one-on-one strategy meeting in your home or office, or by phone or Skype. Call 1800 1 INVEST (1800 146 837) or send Lloyd an email today!

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