Understanding property cycles

The Property Cycle

Source: propertyupdate.com.au

The old adage that property prices move in cycles is certainly true. However, there are many sub-cycles within the Australian property market cycle – state cycle, the cycle within a large cluster of suburbs and even individual suburb cycles.

Therefore, whilst understanding and appreciating general property cycles and where they are at a given point in time, investors also need to understand the sub-cycles which affect their investment portfolios. In boom times, there may still be suburbs which are laggards and vice versa, some suburbs may buck the trend in bear markets.

In general, June quarter figures show that Sydney median house price increased from $611,000 to $625,000, a rise of 2.3% or 13% for the year. However, this growth was contained in the most affordable areas:

Area / suburb

% growth

Inner west

0.6 %

Lower north shore

0.0%

West

3.2%

Sydney / eastern suburbs

-3.8%

South-west

2.4%

Canterbury-Bankstown

2.0%

Upper north shore

5.9%

Northern beaches

3.6%

Source: Australian Property Monitors, June 2010

Although  the above are merely quarterly figures, they do illustrate that in general, there exist sub-cycles within a lager property market. The affluent suburbs in the east experienced strong gains in 2009 and as a result, these areas may be taking a breather, whilst the inner west and lower north shore had very modest growth. On the other hand, the west and south-west areas of Sydney performed better compared to all other areas. The upper north shore which comprise suburbs like Lindfield, Warrawee, Turramurra and Hornsby showed the highest growth while northern beach suburbs like Seaforth, Manly, Dee Why and Collaroy were also strong.

The relatively more expensive and popular suburbs within the CBDs which are believed to hold their prices in slower markets may not always hold true. There have been some spectacular bargains for luxury apartments and penthouses in the city and the east recently. Although land scarcity is relatively lower in the more affordable suburbs away from the CBDs, some of these regional suburbs are more recession-proof in poor economic times. Home prices and rental rates may not experience significant falls as they are relatively more affordable and people still need to rent in such times.

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