'Over the Long Term Property Values Increase'
Understanding property cycles is one of the biggest challenges in real estate.
Many novice investors believe that having read a few articles on the subject or done some basic research they know what is involved. However, property cycles are not as straightforward as some authors would have investors believe.
Many novice investors believe that having read a few articles on the subject or done some basic research they know what is involved. However, property cycles are not as straightforward as some authors would have investors believe.
The key to investing in real estate is timing. As any experienced stock market or property investor will tell you, it’s all but impossible to pick when a market has peaked or bottomed.
There are always those who will tell you they ‘picked the top of the market’ or ‘got it right when it bottomed’. But, the reality is, it rarely happens. Instead, in short, experienced investors try to pick a trend, whether a market is rising or falling.
There are always those who will tell you they ‘picked the top of the market’ or ‘got it right when it bottomed’. But, the reality is, it rarely happens. Instead, in short, experienced investors try to pick a trend, whether a market is rising or falling.
For a property investor to accurately pick the trends, they need to know what a property cycle is.
Property cycles in Australia generally last between seven to 10 years. They operate within the broader economy and are subject to and influenced by those factors that are impacting on the economy as a whole.
Those factors include interest rates, inflation and employment. And of course that immeasurable factor – market confidence.
It is true that the underlying force driving the property market is a growing population. So, what you see in a rising market is that the demand for housing is on the increase, that there is a shortage of both rental accommodation and established and new housing.
According to the standard texts on property markets, the rules of supply and demand then come into play and investors and property developers step in to meet the demand by buying and building more homes.
The reality is that other factors such as interest rates are the real arbitrators of whether or not that new investment takes place.
What we are seeing at the moment is a classic example of a real estate market that is bottoming and is now moving into an upturn cycle as interest rates fall.
Providing the interest rates remain low the market should continue to rise.
Providing the interest rates remain low the market should continue to rise.
It has already proved highly resilient as is evidenced by the release of data that showed the residential market overall fell only 2.6 per cent last year.
