Learn where your region sits on the property clock before you begin your development

With this week’s RBA interest rate cut, I found myself pondering on the impact this may have on the “property clock”. 

We’ve all heard the old saying that “property runs in seven-year cycles”.   While I agree property does run in cycles, the fact is we can’t make a generalisation for the entire property market and cycles vary in length. There is not one property cycle, but many. We need to study the areas we are interested to invest in to get an understanding of its individual property clock. In addition to micro events that will affect a cycle  like the opening of a new supermarket in the area for instance (the effect is an increase in jobs and people wanting to live there), there are also macro events that impact on the cycle.  An obvious example is the impact that the GFC had on property cycles. 

Part of my research process is to track specific postcodes in the areas we develop in closely. I collect the quarterly median price growth data and put it into a graph. I like to see a visual of what’s been happening.  So looking back on one of my graphs, I can see a distinct peak in growth that started in 2002 and continued through 2003.  Since then, we’ve seen this area’s median price plateau, and then small incremental growth spikes occurred, until a larger one in 2009 as a result of the government’s first-home owners grant, which enticed more sales. From 2009 until now, there has been some decent growth. In the past 12 months to August this postcode grew by 8.92% and right now the first-home buyers are back in the market encouraged by the RBA’s rate cut. This rate cut is physiologically representative of far more than the 0.25% cut we received.  We’d been told for a year or more to expect more rate increases. This had everyone sitting on their hands, and even saving while they watched and waited. Now the RBA goes the other way and a big sigh of relief blew over the country. 

If we now take a look at the Property Clock below, and I relate it to this particular postcode in the Hunter region, then I can guess that we’ll see some substantial growth in the median price soon.

Why?  Well this suburb (keep reading and I’ll reveal its name) has a very strong rental market so yields are increasing and there is an undersupply of rental properties. I’m expecting to see more investors coming into this market once they realise the strong returns.  You see the median price is just $238,000 and the median rent is $280 per week.  But Property Bloom completed projects in this suburb rent for $380 per week. 

I believe the Lower Hunter Region is around the 7.30 stage of the clock.  There is not a shortage of stock yet but the very good properties are selling quickly.  And there is certainly a new dwelling stock deficiency here. 

A Property Bloom development will typically takes 12 to 18 months to complete, and during this time demand is likely to strengthen and rents to continue increasing (due to limited rental stock).  And if we do see more rate cuts, then I believe we will move to 9 o’clock very quickly. So it is a great time to be developing and adding value to property. If you time it right, you can create some good equity then ride a wave of capital growth. 

Add to the mix the government’s NSW home builder bonus scheme, which waives stamp duty on off-the-plan purchases of new homes up to the value of $600,000 and on land up to the value of $400,000.  This bonus is due to stop July 2012, so do not waste time if you want to take advantage of this bonus.

Savvy investors are always one step ahead of the general market. You can make an educated call on when you enter the market by studying the property clock – so are you savvy or mainstream?  By the way, the suburb I’ve been talking about is Cessnock.