Saturday 23 August 2014

The Property Market Cycle – Phase 1: Recovery

In this series, I will cover 4 phases of the Property Market Cycle. The 4 phases are:
  • Recovery
  • Growth
  • Bubble
  • Bust

There is no specific length of time the cycle can stay at each phase. Therefore it is meaningless to make a forecast of how much and when. Governments also frequently intervene in different phases of the cycle causing the phase to shorten of lengthen.

Each phase of the cycle has it’s own unique identification features. Recognizing the various phase of the cycle allows an investor to maximize their investment returns by taking the right action.

In this article, I will be covering the characteristics of the Recovery phase.

During this phase, the property price index has been stable for a few quarters or fluctuates within a small narrow range. The general public sentiment is to stay out of the property market. The public having been burnt by the correction phase is extra cautious and rather stay on the sidelines. They doubt that the stability is sustainable and believe that this period of stability is rather short lived.

Transaction prices and rental prices show stability.

There are likely very few news reports and reviews on the topic of property. Property developers are also reluctant to launch developments, as the market sentiment is weak. There is limited demand and new sales and sub-sales volumes are low. However, a keen eyed property investor may notice that resale volumes slowly and quietly creeping up over pass few quarters.

Stock markets are likely to show stable and sustainable growth during this period. Analysts frequently recommend placing money into equities for better gains. Property investment is hardly the talk of the town, again the sensible property investor knows that stock markets are leading indicators for property price increases.

Banks may still be reluctant to extent credit, being very careful to screen all potential loan applications. There may still be lingering news reports of banks rejecting hosing loans.

Governments may choose to eliminate all or the last of any property cooling measures implemented. Potentially, they may even introduce property-spurring measures to stimulate economic activity.

The patient property investor having waited out the bust phase is now searching through classified ads, talking to a few property agents, looking up property sales online and attending property auctions and sales viewings. They take their time to sieve through the information to pick only the highest investment grade properties. They take their time to negotiate to get the best value taking advantage of the low demand.

This is a buyer’s market!

1 comment:

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