The Property Cycle Explained & How It Works – We Have Your Next BBQ Conversation Covered!
How Does The Property Cycle Work
As you may know, understanding the property cycle means that you’ll know when to buy and when to sell property in order to round up the best profit.
On the other hand, there are people that ask themselves whether there is a right, bad, or best time to buy a property. Some of them even question the importance of timing when it comes to such matters.
However, one thing is for sure! Namely – it is always for the best that you consider buying (and perhaps selling) property as a long-term investment, and not as something you wish to just dabble in.
The Australian Property Cycle
In Australia, the property cycles fluctuate across a seven to ten-year period. Naturally, if you keep track of the property cycle’s phases, you have the chance to capitalise on the so-called swings in the market.
Even though the property cycle can help you make better decisions in terms of purchasing property, always keep in mind that there is no sure or certain thing when it comes to property investment.
Let’s now try and understand this property cycle more.
The Phases of the Property Cycle
The Australian property cycle comes with four main phases:
The Opportunity Phase
Just as the name implies, the opportunity phase means that it is a good time to buy a property. This is because the market is at the beginning of an upward swing.
On top of that, the opportunity phase should make you hold on to any property that you currently own as this is not the best time for you to sell.
Despite the fact that this phase shows that you can buy and hold on to property, it doesn’t actually show itself. The opportunity phase is known to be the most difficult phase to spot.
The Growth Phase
This phase comes with rising values as investors begin to see the potential of certain areas. It is believed that property owners that sell during the growth phase will make more money compared to a sale during the opportunity phase – however, it’s less money than they would make from a sale during the peak phase.
Still, the peak phase can be as difficult to spot as the opportunity one. This is why sellers that had their fair share of selling within the property market often recommend people to sell during the growth phase – namely, while the selling is good.
The Peak Phase
Naturally, the peak phase comes with rather chaotic things happening in the market. For example, investors start flooding the market, trying to capitalize on the value that’s now increasing and even push prices even higher.
They are able to do that mainly because now more people fight over fewer properties. The peak phase is one of the most dangerous phases as you can get caught up with buying and eventually pay way too much for a property that will depreciate during the fourth and final phase.
The Correction Phase
This is when property owners are sometimes afraid – because property values may drop. Naturally, a drop in value shouldn’t be something that bad, as it is something that people expect.
However, if you purchased property during the peak phase, then your property may be valued at less than its buying price during the correction phase. On the other hand, it is also known that prices may not even drop during this phase but instead stabilize and display little to no capital growth.
The correction phase is also the time when banks usually tighten their lending, thus making finance rather difficult to obtain.
Obviously, the property cycle doesn’t just happen, so to speak. There are several things that influence it and, ultimately, affect the property you’ve bought or plan to buy.
What Affects and Influences the Property Cycle?
As mentioned above, there are several factors that affect the Australian property cycle. Still, keep in mind that they don’t necessarily come with a universal impact.
Even though the overall economic outlook has a general influence on the aforementioned property cycles, each of the country’s region comes with its own characteristics and differences. For example, phases may often have micro-cycles in towns and suburbs, no matter what is currently happening in any other neighborhoods.
Let’s now see what affects and influences the property cycle.
An area becomes more attractive for investors and families – as well as individuals – the lower its unemployment figures are. This is because low unemployment rates signal that there are no jobs available in a particular area.
This, in turn, builds up a sense of security for the individuals and families that would like to purchase property there. On the other hand, investors consider such areas to have strong rental potential.
When the Australian dollar is lower than other currencies, the properties become cheaper for resident expats and foreign investors. A low exchange rate makes the property market a strong investment opportunity for the buyers that come from overseas.
Obviously, more population means that the demand for housing increases. Still, building property is a rather slow process.
Therefore, if the population increases more than there is housing available, the good-old supply and demand principle will take action and property value will rise just as demand increases.
Naturally, low-interest rates throughout the market will drive foreign customers, as well as domestic ones into it.
The Bottom Line
Understanding the property cycle is not that hard. What’s hard is applying this knowledge to the area you live in. Given that each city, suburb, and neighbourhood may come with its own phases and sub-cycles, it is important that you do your research before engaging the property market.
However, if you have a good grasp over the above-mentioned information, you should not have any issue in predicting and noticing certain cycles, as well as using the influential factors in your favour.
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