The best time to invest in property is right now
The truth is, the best time to plant a tree will always be "10 years ago". But while hindsight is a great tool to reflect on the past, it is useless for planning and acting in the present. This is because no two moments in time are ever the same. If that sounds a little vague, let me put this in to a property context. There are so many variables in the property investment space occurring at any one time, each one reacting to and affecting the others differently, and in changing volumes. This dynamic mix means that conditions are constantly changing, so very rarely would one exact same market conditions present itself twice to the would-be property investor.
In this sense, it is true that yes – the best time to act and to start planning (and implementing!) your investment strategy will always be "now".
Probably the best way to reassure aspiring investors who have doubts is to look at one main performance metric: the property asset class performance over time. I say this because property follows a cyclical trajectory. While few are able to predict exactly how long one full property cycle takes to occur (a cycle completion is not really observed until after it has ended – in other words, only really definitive in hindsight), history tells us that a cycle occurs approximately every five to 10 years. It doesn't really matter how long or short each cycle is. Instead what matters is that cycles occur and that the four main phases to one cycle finish and a new one begins over time. These four phases are a definable peak period, then a decline, followed by a flattened, or stagnated market, followed by a rising market.
Cycles have been plotted pretty extensively over the past 20 or so years, due in part to both better demographic and census data analysis being made available and residential property investment as an asset class coming in to its own. The emergence and industrialisation of property investment has then fuelled this demand for data and statistics in the past five to 10 years, allowing for unprecedented granularity in statistical analysis and coverage of market trends.
Going back about 20 years before that – so, the early 1970s – cycles were fairly loosely observed and tracked, with some of the early pioneering residential property investment strategists beginning to grow their portfolios as far back as this point. Up until then, the concept of using property as a wealth driver was limited only to those "investing" in their own homes and being done with it. What a shift we can observe from those days! Now many investors choose not to own their own home, instead renting where they want to live, and buying where they want to invest.
What this means is that we have a good track record that regardless of how bad things seem at the worst phase of any property cycle and all the naysayers shouting loudly from the rooftops "the bubble will burst and you'll all be left exposed", history tells us otherwise.
Even when observing examples where extreme market corrections take place (I refuse to call them "bubble bursts", because that language suggests that a single person or small group is forcibly and artificially blowing air into the bubble at any one time, suggesting that a such a single-party force has any control over the market – it does not; the market is far too big and complex for any one party to influence significant at any one time), the markets do recover again and providing your investment strategy can work around this; i.e. employing a tactical approach such as long-term "buy and hold", or a manufactured-wealth strategy such as "renovate and hold" or even "flipping' property".
Let's observe the USA market correction that occurred in 2008. While values dipped heavily in many markets during this time, fast-forward four years and USA national averaged values are in a much better place. Recovery has by no means commenced in all markets, with some markets still to correct further, by and large many markets have begun growing further and some are even coming in to an early boom phase.
Nearly all market monitoring metrics are born from following the property cycle. Variables like interest rate peaks and troughs, supply and demand, and demographic factors such as population growth and decline can all be deduced and plotted against the overall property cycle.
1) Capitalising on current cyclical position. I have always believed that Australia is made up not of one big cycle, but hundreds and thousands of smaller ones, all operating independently. But when you average out the national trajectory, it seems that most markets are in their flat/bottomed out stage of their cycles. In other words, now is a great time for mostly dirt-cheap price entry points for property.
2) The cost of finance is very cheap. How cheap? There are fixed and variable interest rate deals out there so cheap;that they have only been recorded lower just once in the last 50 years. Now is a great time to revisit your current rates (if you are already an investor), or acquire property on a cheap finance deal.
3) Supply and demand in most markets is excellent. And I say "most" markets because there are of course exceptions. Inner Melbourne, for instance, is oversupplied, with demand levels low. But for every market like this one, right now there are three or four others where rental demand is very strong. This means that quality tenants – who are willing to pay market rate for the right kinds of properties – are out there in abundance.
4) Infrastructure projects are quietly creeping onwards. I say quietly, because there has not been huge levels of noise in the market about these, but most states and territories are pushing on with development projects such as new arterial roads, highways, train and bus lines, parks, hospitals, and education facilities (including entirely new university campuses). Align with areas where development will make residing in these areas more attractive, and there are gains to be had.
"Now" is always the best time to invest. As always, do your thorough due diligence and seek out opportunity in relation to the property cycle.
Cameron McEvoy is a NSW-based property investor and maintains a blog, Property Spectator.