the pebble has dropped!
Having watched the property market for some years I have developed a theory. I'm sure it is not unique to me but I would like to think so.
My theory is that the property cycle is akin to dropping a pebble into a pond. The initial pebble drop creates a big ripple and from where the pebble landed concentric circles of ripples spread out all the way to the edge of the pond.
To me the initial pebble drop signifies property price increases in Sydney, as it is our largest market. When this happens property owners can capitalise on these valuation increases by either liquidating their assets or increasing the borrowings against them to avail access to the increase in equity. Whichever way this happens, it places them in a strong position to investigate and act on other investment opportunities. Armed with this capital they can look at other cities or regional areas in search of other investments offering better returns and/or capital growth. In doing this they stimulate the market in those other areas which can in turn be viewed as the concentric ripples that move away from the original pebble drop, Sydney.
Recently Sydney has experienced so much growth that (to my mind )its market is now maximised. To continue to purchase there, is risking little or no capital growth for some time.* It may be much more beneficial to concentrate on investing in other capitals or regional areas, so as to ride (or preferably be ahead of) the ripples as they move towards the pond’s edge.
The property cycle, just like the pond will experience the ripple effect all the way to the edge after which it will become calm. This calmness can be seen as the inactivity between market cycles. If one has bought before the ripple then this calmness will be an easy ride of indeterminate length as the returns should accommodate the holding costs. However, should you have missed the ripple, or worse still bought at the top of the ripple, then the ensuing calmness may be a very uncomfortable time in which to hold property as the repayments may be greater than the returns.
Should you wish to prepare your asset base to take advantage of this effect may I recommend contacting me to obtain updated valuations of your portfolio and evaluate your opportunities.
* Of course, in any cycle, there will always be some pockets that still offer good value but they require great diligence and dedication to discover.