Keeping an eye on the market at all times is important for investors and potential investors to best know the right time to put their money to good use, patient as cycles may offer opportunities in disguise!

There are several factors that influence property cycles, here including but not limited to Social, Economical & Political changes.

The cycle springs from population growth, which goes on to influence the demand for property. Lack of property supply enhances property value, which then boosts rents. Property oversupply by developers and builders constructing new buildings results in rent reductions and growth standstills.

Property values have a tendency to fluctuate even though cycles are well-defined. Each cycle is characterized by several circumstances that indicate whether or not it is a good time to invest.

The Demand Phase

The shortest and easiest phase to detect since property prices skyrocket in a short period of time. New generations of investors usually enter the market when the demand phase is in full swing. Newbies tend to be careless and overconfident and ready to overpay. This results in the asking price being lower than the selling price, thanks to competition between buyers. The demand phase comes to an end when the market is flooded with too many properties and the reserve bank boost interest rates.

The Stability Phase

This is best characterized by an oversupply of properties, a decrease in investment returns and an increase in vacancy rates. A drop in property prices causes longer slump phase. Property selling by uneducated investors usually occurs in this phase which results in a deeper decline. Investors usually purchase homes they cannot afford because they are tempted by the cheap interest payments. However, during this phase many homebuyers cannot keep up with their mortgage payments which eventually leads to selling their properties.

The Over Supply Phase

The period of transition when things go back to the way they were when prices were average.

The Absorption Phase

The opportunity phase for investors, as rents start to rise, vacancy rates starts to fall. This is a blessing in disguise for those who recognize an opportunity during the slow rise of property values.

When it comes to property cycles, there are clear distinctions between when the educated and uneducated choose to invest. Keep in mind thought that if you know what to look for there are opportunities in any market!

Source:   Lyons Property

 

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