What’s the property cycle and its stages

The property cycle refers to the periodic fluctuation of property prices and demand in the real estate market.

This cycle is influenced by various factors, including interest rates, population growth, economic performance and government policies.

Understanding the property cycle is crucial for anyone who wants to invest in real estate, as it helps them identify the optimal time to buy, sell or hold property.

The cycle consists of four main stages: boom, downturn, stabilisation, and upturn.

Boom stage

In the boom phase, the demand for property exceeds supply, leading to rising prices and an increase in new developments.

This phase is usually accompanied by low-interest rates, high employment rates and economic growth.

Downturn phase

The downturn, or slump phase, follows the boom and is characterised by a drop in demand, rising interest rates, and decreasing property prices.

There’s an oversupply of properties, developers may halt new projects and buyers are less inclined to invest.

Stabilisation period

In the stabilisation phase, the market begins to steady, and property values and demand start to rise again.

Upturn stage

The upturn phase sees vacancy rates typically slowly falling, rents starting to rise and property values begin to increase with builders and developers starting work on new projects as the cycle enters the boom period and the phases begin to turn again.

To understand the current stage of the property cycle in the Sydney market, it is necessary to look at various indicators.

Indicators

Property prices, rental rates and vacancy rates all provide a clear sign of the market’s overall health.

Economic indicators such as interest rates, inflation rates, and employment rates all have an input too, together with government policies and regulations.

In Sydney, the broad consensus from those at the coalface suggests the worst of the downturn may have passed, with the market approaching an uncertain period until interest rates settle.

McGrath chief executive John McGrath believes the cycle hit its low point through the festive period, which will lead to stabilisation over the next few months and offer a “good possibility” of a small upward movement towards the end of next year.

Housing market

Property investment adviser Michael Yardney said the more affluent suburbs in Sydney, which led the downturn just over a year ago, were currently leading the upturn.

“The most recent property downturn has been shorter, but deeper than previous cycles, and while the supply-demand imbalance is currently pushing the market higher, the lack of rate cuts will limit any price increases,” he said.

Mr Yardney said the property market was doing what it always did – it was working its way through the market cycles driven by various factors such as interest rates, consumer confidence, supply and demand, economic conditions and government policies.

“But it seems the Sydney housing market has turned the corner and the top end of the Sydney market is leading the upturn,” he said.

Property developer Stockland does not expect a sustained recovery until buyers see interest rates settle.

Chief executive Tarun Gupta said in February that Australia was about 18 months into the housing cycle after a peak in late 2021.

“Demand is just starting to pick up,” Mr Gupta said.