The Property Cycle: understanding and navigating the market
What defines a successful property purchase? According to our friends at Meridian Australia, three key factors characterise a successful purchase: timing (when to buy a property), location (buying in a high-growth area), and property retention (the length of time you can hold onto a property). Getting those three factors right is the ultimate goal!
While some people might get lucky, many benefit from seeking the advice of experts who study the markets daily and know how to minimise risks and maximise returns. Alongside expert advice, understanding the property cycle is a crucial tool in your property investment belt.
The Property Cycle explained
History shows that the property market moves in a cycle, influenced by economic, infrastructural, demographic, pricing, yield, supply, and demand factors. Here Meridian identifies five phases of the property cycle and what they mean for you:
Boom Phase
Let’s begin with a bang! The Boom Phase is where we start to see property prices and rents rise, and properties sell quickly. As prices rise, yields start to fall. You’ll see and hear the media touting “hot spots” and urging buyers to “act now”. The key here is to be cautious and avoid the pressure to buy. Sadly, many investors decide to purchase during this phase.
Danger Phase
As sure as night follows day, the Danger Phase (slump) will always follow the Boom Phase. This is generally the longest phase with little or no growth, and sometimes a decline. The hangover from the Boom Phase sees a saturation of developments, creating an oversupply of stock. The media discuss affordability issues, market gloom, and the increase in vacancies for renters. Properties are now taking longer to sell, prices drop, and those who have overextended themselves are forced to sell.
Correction Phase
This is a short phase where values become more affordable, oversupply is absorbed, and small price increases begin. During the correction phase, there’s an increase in consumer confidence and a gradual return of investors to the market.
Opportunity Phase
We now enter the most exciting phase for buyers – the Opportunity Phase. Here market fundamentals have aligned, making it an ideal time for savvy investors. Now is the time to purchase as macro and micro fundamentals are favourable.
Value Phase
As the Opportunity Phase ends, the market is recognised as valuable, leading to a spike in purchases. The media begins touting positive news about consumer confidence and hotspots. The impact for buyers is that prices rise, new stock completes, and lending becomes easier. As we near the end of the Value Phase, buyers are beginning to pay too much, and we eventually transition back into the Boom Phase, repeating the cycle.
Making informed decisions
Understanding the property cycle and anticipating the next phase can help property investors make informed decisions, avoiding media hype and market pressures.
If you want expert knowledge about the cycles and help to make the right property move for you and your family, contact Meridian Australia. Or, if you’re ready to purchase a property and need help finding the perfect loan, call your local Nectar broker today.
