Whether you’re looking to buy a property to start or add to your portfolio or are simply in the market for a positive cashflow investment property, you need to have a good understanding of property cycles, and how they can affect your purchase, and your business.
What Are Property Cycles?
A property cycle is a sequence of events that replicate themselves over time that affect the property market. Property cycles happen in residential, commercial and industrial real estate markets, and they affect everything from vacancy rates and prices to demand and other economic aspects.
Understanding these cycles can be a huge help to anyone considering the purchase of property. A higher level of knowledge about property cycle behaviour will give buyers more confidence when entering the market.
“In highly volatility markets it is argued that a better understanding of property cycles will allow more buyers to avoid negative equity and stresses linked to repossessions.
Different Parts Of The Cycle
The property cycle is made up of four key phases which include the value phase, where prices are dormant, making it a good time to buy. The growth phase is the beginning part of the cycle initiates when property values begin to increase. This part of the cycle will build speed as more people invest in the market, pushing prices higher.
Eventually, the market will reach its peak or apex phase, and that is where property values are pushed to their limits. This marks the top of the market. Following the apex of the cycle is correction. This is when property values become subdued, and values can decline very rapidly in the period if a lot of owners decide to sell at the same time. Following this, prices will drop off, and the cycle will begin again.
Property cycles might be different in length; however, they always take the same trajectory each time. Different factors may affect the duration of a cycle. The crucial part for any buyer is to know exactly when to enter the market. Understanding the property market cycles should be enough to help you understand when you should buy and also when you should sell. It will help you to make the best decisions, at the right times.