A property cycle is a periodic pattern that the property markets seem to follow. This may not be as precise as actual clockwork, but it pretty much works when making long-term predictions. A seasonal cycle would a more accurate analogy. After the summer is up, you know that winter is coming, it may be late or early; but it will surely follow. Similar criteria define property market and its circular nature. The sequences of events are also reflected in the general nature of everything associated and surrounding the property market affecting the supply and demand dynamics including population, economy, socio-political events and so on. A good investment leverages the future rather than the past or the present. An investor has to recognize the current phase of the market to predict what would come and make decisions accordingly.
The cycle comprises of four phases or four seasons if you will. When put on a graph against time, it goes: Fall, Decline, Revival and Ascend. This pattern seems to repeat itself between peaks in the graph. Something like a one-dimensional view of a mountain range, which is fitting considering that this too represents a complex phenomenon.
The Fall, directly following a peak is recognized by declining interest from buyers, faltering sales, and Decline in property prices and rents. This is when the investors are most cautious, as it seems like a never-ending low. During this phase, investors expect a consistent Decline in the near future as well. The upcoming socio-political events too seem unsupportive for a rise. This is followed by the Decline. Decline period is what is popularly known as the buyer’s market. During this phase, the prices Decline, though at a lower rate as compared to the Fall. The sales and rental prices stabilize and become stagnant. The Decline approaches its end as change is predicted depending on upcoming events expected to bring a positive influence on the market. The events can be sudden as well and may result in positive influence in the aftermath. In such cases, the Decline would rush into the next phase, albeit following the same pattern. The Revival phase is when the buzz starts building. The inquiries become frequent, sale price and rents rise gradually. As this phase progresses the prices too pick up the pace, ultimately leading towards the Ascend. The Ascend is also called the seller’s market. The interest rates, sale prices, and rents show a rapid rise. This continues at least till the peak at the beginning of the cycle is reached. Then the cycle starts again.
There are many factors that govern the cycle, but the investors first have to recognize the phase that the market is currently in. The early birds are likely to grab off the good locations in the second phase itself, the safe investors act during the third phase. On the other hand, the buyers who exit in the third phase or plan their investment period coinciding with the second or third phase are likely to regret it later. Sellers ought to monitor the market to understand the current phase and anticipate the most lucrative fourth phase.