Investment property, October 2005

PROPERTY CYCLE FOR INVESTMENT STORY, originally published by Sun Herald Oct 2005

Property investment may not be the hottest word on people’s lips right now – but that could make it the right time to start doing homework on investment opportunities.
As the herds lose interest in property as an investment category, canny investors have a chance to weigh up the risks and opportunities of the property market without competition from other investors.
A new survey from ING Direct and the Melbourne Institute shows that only 14 per cent of people would invest new savings in property, down from 30 per cent two years ago. Macquarie Bank head of property research Rod Cornish says certain rules of property investment should be followed regardless of a boom or bust market. The main rule is to invest for at least five to ten years.
Investors need to stay in the market for an entire property cycle, or the time it takes for property prices to move between boom and bust phases. And understanding the property cycle is the key to exploiting any market opportunities.
As BIS Shrapnel’s director of building and construction Robert Mellor says: “all property investors need a long term view. But there is long term and there is long term, depending on which point in the cycle you buy.
“Buying just before prices start rising means your view doesn’t have to be as long term as if you buy when prices start falling.”
Cornish has studied property cycles and says the length and timing of them varies, but all hold true to the one pattern, which is:
BOOM: A frenzy of activity when investors and owner occupiers bid up prices on property, which is usually in short supply. Booms are typically short-lived at around six to 12 months.
DOWNTURN: This is a time of the cycle when property prices fall in varying amounts across different areas, often radiating outwards from a central point. The downturn can be brought on by an increase in properties for sale on the market, as people try to catch the boom, but miss. A period of falling prices can last for 12 months up to two years after a boom.
FLAT PERIOD: This is a period of stagnation when there can be small price movements upwards. Unemployment, inflation and interest rates all become major determinants of how long the flat period may last. Cornish says this is the current phase that Sydney’s property cycle is in and this period usually runs for two to three years.
PICK-UP TO BOOM: This is a longer phase of the cycle when in-demand suburbs close to the city and beach rise in price first. The price increases occur across different areas and last between three to seven years.
There is only one rule for successful investing: buy low, sell high. Which is essentially the same as the other classic adage: buy in doom, sell in boom.
Naturally, the best time to buy property is before any pick-up to boom.
“No-one can accurately predict when a cycle will take off, but you can assume that cycles will always happen and the patterns usually repeat themselves,” says Cornish, who predicts that Sydney’s property market is currently in the flat period phase of the cycle.
While most experts agree that property investors won’t make the whopping twenty to thirty per cent capital growth returns it did in the bull run to 2003’s boom, there are always opportunities (as well as risks) in this market phase.
LandMark White NSW director of residential valuations Bill Fatouros predicts that Sydney’s property market will return to favour in another 12 to 18 months time, when a new phase of the cycle kicks in.
“That’s when investors will start to come back,” he says.
Cornish points out that most people – especially investors – usually ride the wave of the property cycle a bit too late.
“Ideally you want to buy before the pick up,” he says. “ It’s obviously hard to pick the right time but in every cycle upturn, people only tend to start buying once they read in the paper that prices are picking up.”
BIS Shrapnel’s director of building and construction Robert Mellor warns that the residential property market has more risk of a downturn between now and 2007 than it does of an upswing.
“But I guess that downturn could present even more opportunities to an investor who wants to buy low,” he says.
Mellor says the best time to buy is 12 months before any price upturn is predicted, which he believes will happen around 2008 or 2009.
Mellor says Sydney property presented two great buying opportunities in the last twenty years – back in 1986 (before the 1989-1990 boom) and in 1995, before the long-lasting upswing to the 2003 boom.
“If you bought then and held on through the cycle, you couldn’t lose,” he says.


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PROPERTY CYCLE FOR INVESTMENT STORY, originally published by Sun Herald Oct 2005 Property investment may not be the hottest word on people’s lips right now – but that could make it the right time to start doing homework on investment opportunities. As the herds lose interest in property as an investment category, canny investors have a chance to weigh up the risks and opportunities of the property market without competition from other investors. A new survey from ING Direct and the Melbourne Institute shows that only 14 per cent of people would invest new savings in property, down from 30 per cent two years ago. Macquarie Bank head of property research Rod Cornish says certain rules of property investment should be followed regardless of a boom or bust market. The main rule is to invest for at least five to ten years. Investors need to stay in the market for an entire property cycle, or the time it takes for property prices to move between boom and bust phases. And understanding the property cycle is the key to exploiting any market opportunities. As BIS Shrapnel’s director of building and construction Robert Mellor says: “all property investors need a long term view. But there is long term and there is long term, depending on which point in the cycle you buy. “Buying just before prices start rising means your view doesn’t have to be as long term as if you buy when prices start falling.” Cornish has studied property cycles and says the length and timing of them varies, but all hold true to the one pattern, which is: BOOM: A frenzy of activity when investors and owner occupiers bid up prices on property, which is usually in short supply. Booms are typically short-lived at around six to 12 months. DOWNTURN: This is a time of the cycle when property prices fall in varying amounts across different areas, often radiating outwards from a central point. The downturn can be brought on by an increase in properties for sale on the market, as people try to catch the boom, but miss. A period of falling prices can last for 12 months up to two years after a boom. FLAT PERIOD: This is a period of stagnation when there can be small price movements upwards. Unemployment, inflation and interest rates all become major determinants of how long the flat period may last. Cornish says this is the current phase that Sydney’s property cycle is in and this period usually runs for two to three years. PICK-UP TO BOOM: This is a longer phase of the cycle when in-demand suburbs close to the city and beach rise in price first. The price increases occur across different areas and last between three to seven years. There is only one rule for successful investing: buy low, sell high. Which is essentially the same as the other classic adage: buy in doom, sell in boom. Naturally, the best time to buy property is before any pick-up to boom. “No-one can accurately predict when a cycle will take off, but you can assume that cycles will always happen and the patterns usually repeat themselves,” says Cornish, who predicts that Sydney’s property market is currently in the flat period phase of the cycle. While most experts agree that property investors won’t make the whopping twenty to thirty per cent capital growth returns it did in the bull run to 2003’s boom, there are always opportunities (as well as risks) in this market phase. LandMark White NSW director of residential valuations Bill Fatouros predicts that Sydney’s property market will return to favour in another 12 to 18 months time, when a new phase of the cycle kicks in. “That’s when investors will start to come back,” he says. Cornish points out that most people – especially investors – usually ride the wave of the property cycle a bit too late. “Ideally you want to buy before the pick up,” he says. “ It’s obviously hard to pick the right time but in every cycle upturn, people only tend to start buying once they read in the paper that prices are picking up.” BIS Shrapnel’s director of building and construction Robert Mellor warns that the residential property market has more risk of a downturn between now and 2007 than it does of an upswing. “But I guess that downturn could present even more opportunities to an investor who wants to buy low,” he says. Mellor says the best time to buy is 12 months before any price upturn is predicted, which he believes will happen around 2008 or 2009. Mellor says Sydney property presented two great buying opportunities in the last twenty years – back in 1986 (before the 1989-1990 boom) and in 1995, before the long-lasting upswing to the 2003 boom. “If you bought then and held on through the cycle, you couldn’t lose,” he says.