You're no doubt already familiar with the ‘property cycle.’ Knowing what leads to each of these stages—and how they affect the market—can help inform your property investment strategy. Use the information below to help you recognise the best time and place to invest—whether you’re in stagnation or a property boom.
Getting to know the five property cycle stages
To start, the property cycle is comprised of five stages:
- Rising
- Boom
- Slow
- Stagnant
- Bottom
The name of each stage is rather straightforward in terms of what it indicates within the market. And as you probably already realise, your buying choices during these cycles can drastically impact real estate value, property growth potential, and related cost factors.
Property growth and cycle influences
We all know that the market will ebb and flow depending on multiple factors. Let’s take a look at the three primary aspects that play a role in the movement of this cycle.
1. Financial
- ROI average: What are the typical returns on property investments in your area?
- Rental amounts: How much money does an average rental demand in the area?
- Property values: What are the average property values in the area where you’re interested in investing?
- Rental affordability: Based on employment demographics, are rental rates affordable or overpriced?
- Property purchase affordability: Similar to rental rates, how affordable are property purchases and related expenses?
- Financing accessibility: Are lenders willing to finance real estate investments in this region?
2. Demographics
- Total population level and growth factors: Is the population increasing, decreasing, or levelled out in your area?
- Rental vacancy levels: Are rentals frequently left vacant? Is there a high enough demand in the area to boost rental rates?
- Employment: How are overall employment and unemployment levels?
- Current construction and development: What is the current climate on new property developments and construction?
- Average household size: The larger the household size, the larger the properties that will come into demand over time.
3. Emotional factors
- Sales volume: What is the total number of current and recent property sales?
- Time on the market: How long is an average listing on the market?
- Total number of listings: Is the market over- or under-saturated?
- Region investments: What is happening in terms of upgraded infrastructure, parks, recreational areas, and related amenities?
The more you know and understand these factors, the better you can align your strategy no matter which phase the market is in.
Property investment versus property speculation
It’s also important to distinguish between a property investment strategy and simply acting as a speculator who seeks out the highest ‘in-the-moment’ capital gain. Here’s a quick breakdown of both approaches:
- Property Speculators are primarily motivated by capital gain through the buying and selling of property. Their strategy typically seeks out the best prices in the slow, stagnant, and bottom phases of the property cycle. They sell their properties when the market is in a positive upswing to maximise the amount of money they make from their property.
- Property Investors certainly have an interest in capital gain. However, the total yield in a property is also important to investors. Smart investors will only purchase when they can get a competitive rate that will inevitably yield a positive ROI. Accordingly, investors subscribe to the concept that any time is the 'right' time to invest (regardless of the current cycle stage).
Making the most of property growth cycles
When it comes to New Zealand real estate, property cycles are an important component to your potential return on investment. However, you don’t need to only focus on the lull to enjoy a solid ROI on your investment property. Remember to use the above information to help you recognise the best time to invest in property (and place)—whether you’re in stagnation or a property boom.
Looking for help on your investment journey? Download our free guide to help you navigate the highs and lows of property investing.
