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Property Market Cycles – Phase 2 Late Buyers
When we move pass Phase 1 Early Buyers of the market cycle, we get into Phase 2 Late Buyers.
As new jobs are created at a high speed, people begin moving in. The property market starts to see high interest for previously unsold projects.
The rental market picks up and transaction time frame starts to decrease. Transaction time frame the time between a property being put on the market and being sold.
As more and more jobs are created the speed of property value appreciation shifts to the next gear.
This is a time when early buyers find a lot of elation each month as they witness property prices go up a notch as frequently as they buy milk at the grocery store.
Properties that previously seemed like a waste of money now appear to be good buys by investors. These investors will buy them, refurnish with nice decorations and put it back on the market.
This phase is the time where you find a mad rush to buy properties.
Everyone on the street is talking about properties as it has become much clearer that prices are rising and that there are real people making good money from flipping or renting out.
This has happened only recently in various cities including Singapore. And the government put barriers to this form of investing in the for of stamp duties.
It is also during this phase of the market cycle whereby a lot of new investors take the plunge and buy apartments for investment.
Their decisions are validated by reports circulating everywhere on how others are banking serious money on properties.
It’s not that they will lose money, but if they had learned more about market cycles, they will have ALREADY made money.
Even home owners who have always put their investment funds in blue chips, insurance, and unit trust are starting to extract their cash to buy properties. Demand explodes at this point.
Rentals which were hardly enough to cover expenses previously begin to slowly increase. Valuations which are affected by the rental market goes up as well.
Savvy real estate investors can recognize when market phases are changing.
If you want to get serious in property investing, you should nurture your skills in research and evaluation to decipher messages embedded in market data.
When you live in the same area for too long, it is very easy to form a perception of that place and oblivious to what is actually taking place.
This is why some people actually think that investing overseas is better than at home.
You will be able to look at angles and the bigger picture that locals are unable to. A local might just think that his area is in phase 1 whereby a savvy investor has identified it as phase 2.
A good example was the internet bubble.
When share prices of these companies rose exponentially, everyone jumped on the bandwagon thinking that the herd cannot be wrong. And when it crashed, billions of dollars were wiped out on paper.
Investors were not looking at the bigger picture and identified the wrong phase of the internet.
And as history has taught us, we never learn and will continue to go in circles. Only those who can identify these cycles will be the biggest winners.
When prices of properties rise, everyone wants to get one. It could be that they want to make money out of it, or led to believe that if they do not buy now, prices might be unaffordable in future if the rally does not stop.
Unfortunately, many home buyers buy near the top of the curve. This is the period whereby growth has been clearly going on for an extended period of time.
Every buyer will have success stories to tell at this stage. It is as easy as buy and sell because you will find your property value have risen considerably just 3 months after purchase.
This is a very profitable time to buy properties for investment.
You might think that the market has reached it’s peak. But if you trust the market data that you have collated, you are looking at good profits for a pretty short term investment.
You will of course pay market or asking price.
Sellers may even think that you are crazy, but these sellers who are willing to sell probably may not be investors and are not aware of what is driving the market.
The thing is that a lot of home owners feel that the market is slowing down and would like to cash out before it tips over. They just want to get out with a profit.
At this stage of the market cycle phase, new constructions have slowed down. Developers and speculators have long given up.
In overseas markets, developers often get into financial troubles at this point.
This is because in the market, the oversupply of housing starts to be absorbed but rental rates are not attractive enough to entice enough buyers, which in turn means undesirable sales for developers.
If Singapore continues to embrace foreign talent aggressively, this is a good sign for the property market. More jobs means more people and more money.
A phenomenon occurs when household incomes increase, and household sizes decrease. This is a clear sign that Phase 2 is already here.
When disposable income increases, many people start moving out from the family house and into their own homes either from purchase or rental. Landlords start getting good rentals on their properties.
Investing In Properties During Late Buyers Phase
This is the starting line of a raging bull. But remember to only make purchases with a fair price.
You are not the only property investor around.
And from experience, I can safely say that every property investor thinks that he knows better than every other investor.
Your strategy is simple. Buy and hold while collecting rentals.
Stamp duty policies might not favour a quick sale anyway.
Due to fast rising prices, you might find yourself in a position to make profits even after stamp duties early on. But you can profit much more if you can hold.
Remember that this is just the starting line. But if you treat this as an investment, accept the fact that you must be ready to let it go when the time comes.
Getting emotionally attached to your investments is a bad move. The holding period is best kept at 3 to 5 years.
Another thing to take note is to avoid being a cheapskate when buying in this phase.
Prices will go up and you will make your money back.
You should be laughing at the seller who is willing to let it go at this stage of Late Buyer Phase.
Making cheap offers may mean that you will not close the deal, this just eats up valuable time while prices are rising. This is a phase where most property millionaires are made.