Property Cycle

 

Property markets follow a cyclical pattern, moving from one low point up to the next high point and then back down to the next low point.  This cyclical pattern comprises four distinct phases as follows

4 PHASES OF PROPERTY CIRCLE

RISING PHASE(Recovery) • Vacancy rates decrease • Rents start to rise • Prices begin to increase, usually in the CBD and prime districts first • Yields continue to rise • Interest rates are usually low • Easier to obtain property finance • The length of time to sell a property reduces • • Buyers are mainly experienced investors and few first time buyers • Existing real estate stock slowly absorbed and limited new supply • Prices increase slowly at first and faster towards the end of this phase

PEAKING PHASE (Boom) • Vacancy rates are low • Rents rise rapidly to levels that place significant financial pressure on tenants • Yields fall as prices rise proportionally more than rents rise • Easy to obtain property finance • The length of time to sell a property reduces markedly • Sellers regularly achieve asking price • Many first time buyers • Few repossessions or distressed sale • Strong demand spurs new supply • New construction underway and in the pipeline • Prices increase rapidly before flattening and peaking

FALLIN PHASE (Slump) • Vacancy rates increase • Rents fall and at an increasing rate • Yields are flat or falling • Harder to obtain property finance • Interest rates rises • Properties taking longer to sell • Not uncommon to see properties transacting below valuation • Margin calls on property loans by banks • Demand wanes and is outstripped by new supply • New construction arriving but few new launches by developers • Prices falling slowly initially and rapidly towards the end of this phase

BOTTOMING PHASE (Stabilisation) • Vacancy rates are high • Rents flat or falling at slower rate • Yields start to improve • Property finance is difficult to obtain • Properties stay on market a long time • Sellers seldom achieve asking price • Many distressed sales and banks auction off repossessions • Supply ahead of stagnant demand • Few new constructions • Prices fall rapidly before flattening and bottoming

 

Source: http://www.singaporepropertycycle.com

 

 

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