PROPERTY CLOCKProviding Business tools for the Australian Building and Construction Industry to assist Developers, Builders, Owner Builders and Tradespeople
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People that are to venture into developing property should understand how the property clock works. The purpose of the property clock is to indicate with some regularity and dependability, what times and regions are currently favorable for developing property during the property cycle.
The more astute developers understand that there are many property cycles that effect different types of assets and run for different lengths of time as well. It’s important for investors to understand where individual properties fall on the property cycle and which micro events have the most impact on the cycle.
Aside from micro circumstances, like a new store opening across the street, there are macro events that can affect properties within the cycle as well. Many developers use the clock as a smaller proponent of their investment and research model that helps to provide clarity on broad market dynamics.
Some developers monitor specific regions and follow the median price growth data each quarter and insert it into a table or a graph. Understanding each stop in the property cycle clock will help developers anticipate how the market is developing as real-time events occur.
Here is a general idea of how each tick works on the clock:
• 12:00 — The top of the market; prices are increasing at this point.
• 1:00 – Rental returns are lower
• 2:00 – There is a surplus of properties for sale
• 3:00 – Increasing interest rates; the market is evenly supplied
• 4:00 – The rate of property sales is declining
• 5:00 – The rate of construction for new dwellings is declining
• 6:00 – The bottom of the market, prices are declining; the market is oversupplied
• 7:00 – Rental returns are improving
• 8:00 – Demands outpace the properties that are available
• 9:00 – Interest rates are declining; supply is tight
• 10:00 – Rate of property sales are improving
• 11:00 – Construction of new dwellings increases
The property cycle can help astute developers decide if there are opportunities available on the horizon when reviewing the developments in the broad market. Many developers believe that some of the primary catalysts effecting major markets are job creation, supply and demand and local confidence as well. Many developers spend the majority of their efforts trying to identify the bottom of the clock.
It’s important to remember that the direction in which assets travel on the clock only partially depends on broad market developments and conditions.
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