...The SLUMP PHASE
This is often characterised by an oversupply of properties due to the over exuberant activity of builders and developers. This causes increasing vacancy rates and decreasing investment returns.

Property prices stop growing and in some cases drop. If there has been a prolonged boom phase, this is usually followed by a longer and deeper slump phase with a greater likelihood of property prices falling.

During the slump property is out of favour in the media and investors often struggle with decreased cash flows, higher interest rates and stalling values. They often consider selling their properties. When they do this in a falling market with few buyers, they exacerbate the slump.

This is also the stage when many new home buyers get into trouble. They often overcommit themselves during the boom by purchasing properties they could not afford and to interest payments that could just afford. And now as interest rates have risen, some have difficulty keeping up mortgage payments and the only way out for them is to sell their properties at depressed prices. This often leaves them severely out of pocket and with a residual debt.

The STABILISATION PHASE
Our property markets don't usually jump from aperiod of negative sentiment to the next upturn. There is usually a short phase where the various economic factor catch up with each other – they stabilize or get back into equilibrium.

Things get back closer to the average – I guess that's how averages work.

The UPTURN PHASE
During the upturn, vacancy rates slowly fall, rents start to rise, and property values start to rise slowly at first. This phase creates great opportunities but these are not usually easily recognised by most investors.

At the beginning of the upturn phase of the property cycle interest rates are usually low and it is easier to get finance. Property values generally start increasing in the inner ring, more affluent suburbs and those close to the CBD or the beaches driven initially by owner occupiers looking to upgrade their homes. Over the next few years increasing property values ripple out to the middle ring suburbs and eventually, sometimes after a number of years to the outer ring suburbs.

By the middle of the upturn property is generally affordable and returns from property investment are attractive. Investors begin to enter the market. In particular professional investors take advantage of the opportunities of the upturn phase, but beginning investors are not yet convinced that property is a good investment.

This is the time that many builders and developers buy properties and commence development projects to have them completed by the late upturn or boom phases of the cycle.

Investors slowly get back into property as conditions seem more favourable. They see property values increasing and are concerned that they may miss out if they don't buy a property. This is also the time that many first home buyers enter the property market.

Property values usually increase gently during this stage (usually less than 10% per annum) and do not rise sharply until the boom phase of the cycle.

At the end of the upturn phase of the property cycle real estate prices have risen substantially and property is becoming less affordable. As prices rise investment returns decrease.

And.....we start all over again.

or call Metropole on 1300 20 30 30 to get a special report "How To Get Started in Property Development."

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