There have recently been a number of sensational reports of a possible property crash.
When this occurs (which is every few years), it is useful to provide historical perspective on what has occurred before.
Property Research house Corelogic have looked a property cycles in each capital going back as far as the early 1980s (8 property cycles for Sydney, less for other capitals).
Usually, price falls are small with a quick recovery.
But occasionally, falls are larger and recovery time is longer.
In summary, for each capital:

  • The largest fall from a peak has been about 10%
  • The longest time for the fall to correct and a new peak to be reached is about 5 years
  • Of course, the typical fall is much lower and the recovery time much quicker

If history is a guide (and it is probably the best guide we have) then this suggests that even if a residential property investor buys at the absolute peak of the market, they are unlikely to make a capital loss if they are prepared to hold for at least 5 years. We recommend holding longer – for at least two property cycles.
Full historical details are in this report  What Have Periods of Decline Looked Like Over Recent Years and How Long Have Markets Taken to Recover (PDF).
A sample chart, showing the recovery time for Sydney property prices, is below.
Period of time until new peak - Sydney
Sensationalist negative reports reduce investor demand, which creates opportunities for the careful investor prepared to take the longer view.
When sentiment is soft, our recommendations are to look for properties in sound locations with one or more of the following characteristics:

  • high yield, so properties are ideally cash flow positive while waiting for capital gain
  • locations that are near the bottom of the property cycle
  • for properties at the top of the cycle (or easing) look for vendor incentives such as a price reduction or contribution to stamp duty
  • where possible, obtain bank valuation before purchasing – valuers are notoriously conservative, so if a valuer supports the purchase price you can be confident of the value

Compass has access to quality properties in all regions and is happy to provide properties for consideration to interested investors. If you would like us to contact you please register interest.
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