There are four distinct phases in every property cycle, yet surprisingly few investors capitalise on this knowledge.
Understanding exactly where you are in the property cycle can ultimately help you pick the best time to buy and sell for maximum profit.
1. Opportunity phase
This is the beginning of the cycle and the most favourable time to buy. Prices are low and banks are trying to tempt clients with lower interest rates and friendly terms. Experienced investors typically choose this moment to enter the market and make the most of this brief but golden investment period. As market conditions continue to stabilise, more investors follow suit and gradually start entering the market.
2. Growth phase
Investors are now starting to feel more confident as they see an upswing in values. This phase tends to attract the more conservative investor who prefers to see solid market growth before committing. This is also a time when rents are slowly increasing and vacancy rates falling, prompting first home buyers to take the leap into the housing market. The pace of the market starts to gain momentum, leading to slow but steady price rises.
3. Peak phase
By now, market sentiment is truly heating up and prices are steadily rising. Encouraged by the market’s buoyancy and an assumption that prices will only continue to rise, more inexperienced and ultraconservative investors flood the market and we start seeing a true property boom. This can be a risky phase for investors who get caught up in the hype and end up buying into an overheated market. On the other hand, this is the perfect opportunity for owners to sell their properties to an insatiable market.
4. Correction phase
The market finally gets a reality check. Overextended buyers begin defaulting on loans, banks tighten their credit and the excess supply of properties built during the boom starts to outstrip demand. Values typically drop or remain subdued during this period and oversupply brings with it a new phase of high vacancy rates and decreasing investment returns.
As investors face higher interest rates and a sluggish cash flow, many choose to sell at a loss and the slump continues to deepen. This painful but necessary correction phase allows the market to realign. For investors with funding behind them, this can be a great opportunity to buy distressed properties selling below market value. It’s also an ideal time for smart investors to start preparing for the next opportunity phase that’s just around the corner.
Are you looking for a way to streamline your property management? K.G. Hurst has in-depth knowledge of the Sydney rental market and can help you get the optimum return from your investment.
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