Tuesday, 26 August 2014

The Property Market Cycle – Phase 2: Growth

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 Growth phase.

During this phase, the property price index has been on the raise for a few quarters and usually much faster than the public expects. The general public sentiment is starting to change. Some buyers take the opportunity to pick up units they have been eyeing. While others still stay on the sidelines taking a wait and see approach. It’s a confusing phase for buyers as friends and families are likely to give them conflicting advices on property.

Transaction prices and rental prices show increases.

The topic of property is now gaining traction in the news reports. More and more people are beginning to tune in to the property discussion but still cautious of committing. Quarter after quarter, the growth in transaction prices and volumes surprises the markets.

Property developers begin to market and launch new developments in an effort to take advantage of the improving sentiment. Some old projects that did not sell well earlier may be re-launched. The demand is improving and new sales and resale volumes are picking up pace. Sub-sales volumes are still low and speculators dare not enter to flip new launches uncertain if the demand will hold up.

New of property developers purchasing whole projects en-bloc, rebuilding and launching them at smaller sizes and pushing up higher per square foot prices spread. This fuels more people to consider purchasing new units creating an increase in demand.

Stock markets have already had a good run up and possibly even now accelerating. Economic news are always positive and analyst begin to encourage property investment.

Banks begin to loosen their financing restrictions on housing loans. The credit approval cycle is easier and quicker.

Governments may warn property buyers to be prudent about their purchases and not to over stretch themselves. Weak cooling measures may come into effect to serve as a warning from the government.

This is a still a buyer’s market, but the prudent property investor has already made his acquisition. He is now taking the opportunity to raise rental prices to increase his investment yield while riding the upward trend. He may however still choose to pick up another unit if he can ascertain that it is under-valued relative to its peers.

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