Property cycles: 4 Valuable lessons for investors

Property cycles: 4 Valuable lessons for investors

investors-discussingAussie property markets have caught all of us by surprise over the last twelve months or so, especially within Sydney and Melbourne.

We’ve been in what seems a continuous upswing lasting a little over four years now, which means that what comes next may be less than desirable. There’s plenty that can happen, and plenty that might not. However mistakes combined with progress is the ultimate indication of experience – and we want to share some of it with you.

Here’s four valuable lessons that all property investors should consider and understand.

1. The property market has its own cycle

The property cycle generally lasts between seven and ten years. Social and economic factors contribute and influence the way the cycles operates and determine how long it will take to revert back to its initial stage. And as we’ve grossly witnessed this year, interest rates and government-related actions impact the cycle as well – potentially prolonging it.

Learning about each stage of the cycle and how it effects property value is an imperative addition to the wealth of any investor’s knowledge.

2. Oftentimes, the market is incorrect about the actual stage of its cycle

Some investors have it all backwards. Most will have a positive outlook or attitude towards their investment when the cycle is reaching its pinnacle. This is when investors should be taking their most conservative approach.

On the contrary, they’re not happy when the media screams negativity relating to the cycle, when in fact, this is when you want to remain optimistic. How many times have we seen the market overshoot in a supposed ‘boom’ and see investors ‘overreact’ when it momentarily slumps?

All of these elements are what ultimately drives the cycle and overall market values.

3. More than one market exists

When you really get down to it, there’s not just one property market. Various sub-markets exist within every city, state, town, suburb or a whole other range of different area types.

Each state has its own cycle. The cities and regional areas within those states influence that cycle by means of pricing, property types, demographics etc. What’s equally interesting is that each market in the cycle will perform significantly different to the next. For example, the investors market in Sydney is going to progress differently to the homebuyers market in Dubbo.

4. Consider the ‘X factor’

Yes, the X factor is more than just an overused adjective and a TV show. It’s a real situation in the property investment world and is a more regular occurrence then we think.

The X factor is said to be an unforeseen event that alters all plans, projections and forecasts that have been predetermined. These property market X factors can be both positive and negative.

The most recent one for example has been the record-low interests rates witnessed by thousands of lucky 2015/2016 investors.

Many an expert has attempted to predict what the next X factor will be, however being an unforeseen circumstance, this proves to be basically impossible.

The bottom line is that you should always be financially prepared for the most uncertain or detrimental events, diversify where possible, and remember that patience almost always pays off.

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