Is there a right time to buy land?
Different people will have varying opinions on when is the right time to buy a property. Ultimately you are the one who has to be comfortable with the decision of when the right time is for you and your financial situation.
Like many things in life, the property market moves in cycles. Strong market growth may increase the value of properties, however at certain points of the cycle, the value may remain steady or even decline.
Knowing what point the cycle is at when you are considering your purchase will allow you to make an educated decision on the price you are willing to pay for your property.
It is agreed by most experts that the property cycle goes through 3 different phases before turning full circle.
The Boom Phase/The High Point
Generally the shortest part of the cycle and one in which property prices increase at an escalated rate.
Buyers and investors may decide to buy into this market for fear of prices increasing even more and propelling affordability beyond their means. The competition this creates in the market sees buyers and investors hotly contest properties, often pushing prices well above their asking prices.
During this time more people list their property for sale, hoping to ride the high. Unfortunately this will most likely flood the market, causing an oversupply that then ends this part of the property cycle.
The Slump Phase/The Low Point
In this phase property prices stop rising and in some cases they go backwards. This is because there has become an oversupply of property caused in the boom phase. This also trends towards an increase of rental properties being available and unfortunately that means that vacancy rates are likely to increase.
The price people are willing to pay for rentals may decrease in line with this as an oversupply becomes evident. Many suggest that when looking to purchase an investment property you should work your figures out on what you are likely to get as a return in a low market.
The Upturn Phase/The Recovery Point
This is generally the longest phase. Property values will start to increase slowly and vacancy rates in the rental market will start to decrease. This is often seen as a good time to invest as you are buying into a stable market that is not flooded with new rental properties.
Traditionally the inner city suburbs will start to recover first and this will move out until it eventually reaches the outer suburbs.
Because property is generally more affordable in this phase, return on investments are favourable and more people start to buy again. This will eventually push the market towards its next boom phase but the time it takes can span a number of years.
And so the cycle begins again...
Obviously buying an investment property when the market has had a down turn seems preferable as it should eventually rise again and your asset will grow in value. But remember that this also means there will likely be more rental properties for potential tenants to choose from.
Buying in a boom period or in the high point of a cycle means there may be a risk that the property will lose value initially when the market corrects itself.
This can be a problem if you’re looking for a short term investment because you run the risk of not making a profit, or worse, not recouping costs when you sell.
If you envisage your purchase being a long term investment then “TIME IN” is probably more important than TIMING.
Looking for the right property?
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