Where are we in the property cycle? Good question.

I've read many reports suggesting that "it's" all over now and this is not a good time to get into property. Our research gives a different picture.

One of the biggest mistakes many property investors make is that they forget history. When a market starts to turn they forget that the same thing happened years ago and that after a flat period, property values reach a new high.

When things are good, human nature leads us to think that they will be good forever. And when things are bad, we tend to think it will be bad forever.

This means investors tend to be most confident at the peak of a property boom, when they probably should be the most cautious, and they are most cautious during difficult times when the next inevitable upswing could be the greatest.

The truth is, all property markets are cyclical. Housing values grow, plateau and at times they fall. And then they grow again.

That's the nature of cycles. That's how economics works. Certain factors in an economy have to catch up with each other.

According to a long term study by Massey University - investment properties in Australia have, on average, returned a combined 15% per annum (capital growth and rental return) since 1929.

So back to my initial question - "Where are we in the property cycle?" To help us understand this better let's go back a few years.

The property markets started slowly this decade, then picked up pace in 2002 and 2003, with the last property cycle peaking in Melbourne & Sydney in late 2003 as interest rates started rising. The Brisbane market continued for a little longer before slowing down for a short while. At the same time the Perth and Darwin markets took off fuelled by the resources boom.

Then in early to mid 2006, driven by a shortage of supply and an increasing demand by owner occupiers, the Melbourne market again moved into the early upturn phase of the property cycle. Similar influences, plus relatively low prices, pushed the Brisbane market forward later that year.

At the same time the Perth and Darwin markets powered on while Sydney languished.

2007 saw the east coast property markets take most of us by surprise. While the fundamentals were strong, no one really predicted increases in property values of close to 20% in Adelaide, Canberra, Melbourne, Brisbane and Darwin. In the meantime Sydney still floundered and Perth stopped dead.

Many of us started 2008 anticipating another top year for property as the underlying fundamentals were sound, but boy were we in for a surprise!

The overseas credit crisis, the global stock market crash, increasing interest rates, rising inflation plus the US economy moving into recession has led to a very different market this year.

We have taken a pause in the upward phase of the cycle.

Some would suggest a well earned pause, because the strong growth in many of our property markets was unsustainable. If growth would have continued at that same heady pace our markets would have been set for an almighty crash.

But despite all the bad news and the credit crunch we are currently experiencing, the underlying fundamentals that will see us through are:

A strong economy
A rising population and changing demographics creating a huge demand for housing
A shortage of dwellings that will take many years to come back into equilibrium
Rising construction costs ensuring all newly built dwellings will come with a considerably higher price tag
Falling vacancy rates will underpin a strong rise in rents for the next few years.

All this means that 2008 is the year to get your affairs in order and take advantage of the property opportunities you may not have been able to buy last year.

Ensure you have the correct finance in place to cover another rise in interest rates as well as lower capital growth for the next few years. Get your tax structures in place to protect your assets and minimize your tax.

Then do your research thoroughly and make cheeky offers. If you are a long term real estate investor you should be excited by the opportunities the market is presenting right now. To take advantage of a buyer's markets you have to be buying property.

But you can't just buy any property. Some properties will fall in value over the next while, others may not increase in value and others are likely to keep increasing in value due to supply and demand factors.

Michael Yardney
Metrapole
9/5/08

Where are we in the property cycle? Good question.

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