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Understanding the Property Cycle - Gordon Wealth

Given that property prices are predicted to continue to increase, many believe that there’s a right timing. Beginning investors are likely to observe the market movement before deciding to buy new properties. But by the time a significant movement in the market has taken place, the experienced investors have already made their purchase.

How do they do this?

It’s time we learn the four phases of property cycle.

  • The Boom Phase

The boom phase is the shortest phase of the cycle, but also the phase when greed kicks in, speculations arise and the attempt to make a move of buying property usually begins. The boom phase is usually hyped by property seminars, press releases and TV features, highlighting the predicted increase in property values at up to 20 per cent per annum. Many expect the prices to keep rising, many wanting to finally settle, but are unable to do so because they don’t have the means.

Many people also join in the boom phase in fear that they can’t keep up with the trend, what the promise of profits and increase in property values. Generally, the boom phase is characterized by:

  1. Strong rise in property values
  2. High levels of credit growth
  3. A more loose lending criteria in banks
  4. High levels of construction, oversupply of properties and higher vacancy rates
  5. More affordable housing
  6. Reserve Bank raises interest rate
  7. A credit crunch occurs and banks tighten their lending criteria
  • The Downturn Phase

After the Boom Phase, a slump phase follows. During this time, there’s an oversupply of properties as a result of the energetic construction of builders and developers during the Boom Phase. Property prices may either drop or stay neutral. Investors struggle with cash flow, higher interest rates and stalling venues. Many people become tempted to sell their properties and with the property market falling, they only add more insult to injury. Banks become more investor friendly in an attempt to stimulate the economy and loosen their lending criteria.

  • The Stabilisation Phase

In an attempt to move on from the slump phase, the property market goes through the stabilisation phase. The prices do not shoot up wildly and drastically. It may stay the same or do so in a slow pace. Buyers tentatively move back to the market soaking up the properties for sale. This time is considered as a great opportunity to invest, although most investors do not recognize this because it is largely considered as a buyer’s market.

  • The Upturn Phase

The property market steadily moves on from the stabilisation to upturn phase. At this point, vacancy rates fall slowly, rents start to rise and property values begin to increase. This is the time when buyers and investors enter the market with more confidence as property becomes more affordable and prices are more attractive. This is a great time for property investments as upturn phase will be followed by the boom phase. This is when many builders and developers begin work on new development projects, aiming to have them completed by the late upturn or boom phases of the cycle.

With the consideration of these phases, investors, beginners and experienced alike, are able to make a more educated decision as to when they could ideally buy and invest in properties. Eventually, these investments will begin to pay off; they reap their profits in a few years and make their way towards financial freedom.

To get in touch with a Financial Specialist at Gordon Wealth, click here, or call us on 1300 05 05 88.

Call Us 02 9231 8611