Expert insight: Growth cycle data points to good investment locations

For Propertyology’s Simon Pressley, it’s important for investors to also be aware of the trends that have controlled the market over the past years.

“Properties don't change hands very often. It's, on average, between seven and ten years. What causes property prices to grow is buyer behaviour and when it happens on mass. When you've got a lot more than the average buyer activity within a few years, that's when you get the price growth.”

As such, the buyer’s agent strongly advised investors to consider growth cycle data as a reliable indicator of an investment location’s growth potential.

More often than not, markets that are currently in a strong growth cycle or have recently come out of one may not be in a good position to experience another significant growth for a considerable amount of time, Mr Pressley said.

“Over a 20-year period, Sydney has had two really strong growth cycles—a few years after the Sydney 2000 Olympic games and the one that's just recently finished. Then, there was a solitary year of growth in the middle there, at 2010, which was a stimulus package coming out of the GFC.”

“In 20 years, Sydney's had only two growth cycles, with few locations that might have had three, which goes to show that growth cycles don't come around very often. If you've invested in a location that's just recently had one, the odds are you're going to be waiting a long, long time before another growth cycle starts, and you'll just be frustrated,” according to him.

How do growth cycles work?

Apart from being few and far in between, growth cycles also don’t last very long, Mr Pressley reminded investors.

On average, a growth cycle lasts for only two to four years, with just a few exceptions, even in capital city markets.

The buyer’s agent explained: “Sydney and Melbourne went a couple months over four years, but that’s about it, and this is because we don't buy property very often. Once someone bought that family home, for example, the average person's going to be happy there and not move for seven to 10 years. So, if a market's grown strong for a long period of time, it's probably only got a year or two left.”

However, Mr Pressley clarified that not all growth cycles end in crippling declines.

For instance, those who bought in Sydney from 2012 to 2013 are likely to be better off than those who bought between 2015 to 2017, simply because of how the growth cycles went during the said period.

“Because Sydney's cycle ended in July 2017, we’re back to prices in Sydney at 2015 level. Sydney will probably level out at some point in 2020, and we will be back to prices at the beginning of 2015.”

“Now, for those who bought in 2012, 2013, they're still well ahead, but those who bought in 2015, 2016 or 2017, they're way behind and they could be waiting seven, eight years before the next cycle starts,” according to Mr Pressley.

Still, just because a location has not seen significant growth for a long time does not mean that it’s set up for a growth cycle soon.

Brisbane, for instance, has not seen a growth cycles since 2007 even if growth fundamentals are present in the capital city and even when most investors expected it to rise in 2014 when Sydney and Melbourne started to decline, Mr Pressley said.

“It hasn't gone backwards either, so now a lot of people have been really frustrated and disappointed, and we certainly have been as well, but the key is trying to understand what will make it grow.”

“Property markets don't just take turns. They grow for a reason, and it's mostly the economic conditions. You invest there when there's a whole bunch of good economic indicators that gives you confidence that the market is going to improve,” he concluded.

Tune in to Simon Pressley's episode on The Smart Property Investment Show to know more about the strategies that could help investors succeed in today's property market.