Should you buy in a slowing market?
Those who are experienced in the property market will be aware that it works in cycles – there are ups, downs and everything in between. How you act in the market is usually depicted by where the cycle is at.
According to a release from BIS Shrapnel, a typical property cycle lasts anywhere from five to eight years. There is normally around two years of competitive demand, with the remaining years containing relatively muted growth, or even price falls – a competent property buyers' agent will be fully aware of where your area sits in the cycle.
"Buyers are slowly regaining some leverage in what has been a very hot market"
Figures from CoreLogic RP Data reveal that property prices in Sydney and Melbourne have skyrocketed, surging upwards 16.7 and 14.2 per cent respectively in just the 12 months to September 2015.
However, CoreLogic RP Data Head of Research Tim Lawless noted that the cycle may be turning, as particularly in Sydney, auction clearance rates have dropped while the number of homes on the market has increased.
"Vendors are still enjoying strong selling conditions, but it looks like buyers are slowly regaining some leverage in what has been a very hot market," he said.
While no one can definitively predict when the price growth will decline, it always pays to be prepared.
Why buy in a slowing market?
Following the basic laws of economics, as properties take longer to sell due to the decrease in demand, vendors will begin lowering their prices in an attempt to encourage interest from buyers.
Essentially, this means that in a slowing market you will be able to access a greater selection of more affordable properties. As a buyer, the ball will be very much in your court!
Provided you make an informed decision (the services of a buyers' agent can help here), you could experience significant gains in the future when the cycle returns to it's high points.
Given that the real estate cycles are often different between states, cities and even suburbs, it pays to have a property agent on hand who has vast knowledge of the local market.
After all, it's better to purchase a property while the costs are reasonable than wait for the boom and find yourself unable to get your foot in the door due to a lack of funds. Here are some tips for buying in a slowing market:
Locate key drivers of growth
One of the fundamentals of effective property investment is to purchase in an area before it takes off – these locations are often referred to as 'hot spots'. The Australian Securities and Investments Commission recommends scouring the internet and viewing properties in the flesh, keeping an eye out for suburbs with:
- Consistent growth in the value of property sales, as this will give you an idea of the 'real' market value – look back at least 12 months to examine its history
- A median price that is notably cheaper than neighbouring suburbs, as this can indicate imminent growth
- Steady population growth that is higher than normal, as this can denote that there is high demand for the area from prospective tenants
- A restriction to housing stock, as economics 101 depicts, reduced supply will most often result in increased demand
- Future council plans that could affect your investment positively (for example a new school, shops or improved public transport) or negatively (for example, a new housing development, council taxes or a noisy highway).
- Homes with long lasting quality construction, to mitigate the chances of expensive maintenance and repairs in the future
By doing your due diligence and delving into the depths of real estate data, you can make an informed decision on a potential hot spot in a cold market moving forward.
In it for the long-haul
It's important that you don't forget that at the end of the day, property is a long-term investment. While there may be fluctuations in the short term, the rises will generally be steady over the long run.
For instance, figures from CoreLogic RP Data reveal that in just the seven years to September 2015, property values soared in Sydney and Melbourne by 76.5 and 68.8 per cent respectively.
To put that in perspective, had you purchased a property for $500,000 in Sydney in September 2011 when the market was slow, you could have made (excluding costs) about $382,500 capital gains in only seven years.
Why use a buyers' agent?
They will be in the best position to help you achieve your goals
A competent property buyers' agent will listen to your needs and real estate ambitions, before searching through the market to find the right investment to suit your requirements. This includes being able to provide you with exclusive inside information and access to private house sales due to their intricate networks of real estate professionals.
Buyers' agents will have experience, intimate knowledge of real estate in your area and your best interests at heart, meaning they will be in the ideal position to help you achieve your goals and ensure you make a profitable property investment.