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.
During this phase, the property price index
declines quarter on quarter, perhaps accelerating downwards. The general public
is caught unaware by some “black swan” event and the sentiment suddenly turns
very bearish. Some may attempt to sell their properties lower than market value
in order to cash out. Others caught unaware start to panic and sell at
depressed prices. Still more are those who are unable to finance the monthly
mortgage will have their properties seized by the banks and auctioned off.
All these create surge in supply of units causing
prices to spiral downwards. Transaction prices and rental prices dip lower.
Property listings garner little interest from the markets and take a long time
to transact.
Property developers inventories start to climb. Desperate
to clear inventory, they re-launch projects that did not sell well at much lower
prices. Many sales gimmicks such as free renovation, cars, discounts and
furniture vouchers are dished out in an attempt to close sales. There is a huge
drop in new sales and resale volumes and virtually no sub-sales transactions at
all.
Stock markets have likely crashed and bottoming
out at this point. No one recommends equities or even properties and
investment. Investors have been burnt by both losses in the equity and property
market.
Banks tighten their financing restrictions and
loans are difficult to obtain. Financial institutions may go one step further
and demand customers top up differences in the property value and the loans.
Those unable to do so will have their property seized.
Governments worried about the collapse in the
property market begin to withdraw their cooling measures one by one. However,
the public is not interested in property and prices continue to slide.
The wise property investor knows that the cycle
has ended and a new one will begin shortly. He monitors the property trends to
ensure that he enters only after the bust has fully run its course and bottomed
out.
He feels secure knowing that his property
portfolio is still generating him passive income and cash flow. He is sitting
on a large profit from his previous investments and waiting to expand his
portfolio at bargain prices.
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