Most people are familiar with the term property cycle, but not many know exactly what it means. Property cycles have a long history, and it is important to understand them if you plan on investing in the market. Property prices are cyclical and will always follow up-and-down patterns over time. Property cycles normally last about 10 years, but this can differ depending on a range of factors.
There are two opposing factors that control property cycles:
- Property demand (wanting, needing, and affordability of property)
- Property supply (what is available to purchase in the market)
If Demand exceeds Property Supply, property prices will generally go up. If the property supply exceeds property demand, then property prices will generally go down whether that be for sale and/or rent.
But what causes the prices to fluctuate?
We have consistent growth in population and we are of the few countries that have been recession-free for some time now. But this won’t continue forever.
Some of the other factors that may affect the property cycle are:
- Unemployment (amount of people looking for work)
- The economy and currency markets (how the government manages its debt & interest rates)
- Property affordability (what can you get for your money) – Property Supply & Property Demand.
As people start to buy property, like at the time of writing this article, the value of a property starts to rise. This is the effect of limited supply with increasing demand.
We have COVID to thank for the current upward surge we are experiencing right now.
At the same time, Developers, Builders, and Home Owners will start to increase stock to the market to capitalise on this sudden increase, which in time will lead to an oversupply, which in turn results in a slump in property prices and rent reductions.