Is there a property cycle in Singapore?
MAS warns Singapore households on rising mortgage debt ahead of potential interest rate hikes. Singapore households have amassed a larger debt pile than before Covid-19 struck, thanks to a buoyant property market. The recent Copen-Grand, the first executive condo at the upcoming Tengah Town, is fully sold. Despite MAS reminders, many property buyers continue to ignore and continue their property shopping.
Being a successful property investor requires knowledge of industry-specific terms and trends. After all, property trend is constantly changing. The addition of new technologies, changing economic patterns, and housing legislation all affect the market. Overall, real estate follows a pattern called the property cycle that represents local and national economic trends.
We explore what a property cycle is and why it matters. Next, we go over what affects the property cycle. Finally, we define the four cycles of property and explore how you can best understand and navigate them.
The property market cycle is a pattern that represents the economic changes within the housing industry. It’s split into four economic phases, which directly indicate market health. Many real estate developers make major business moves depending on which phase of the real estate cycle we’re in. Additionally, property developers look toward the next cycle to inform their decisions.
How long do property cycles last?
It’s not easy to calculate the years in a property cycle. Financial analysts often claim that the next big economic change — such as a recession — is on the way. However, these predictions are never guaranteed, and there’s no way to be sure when exactly a new phase of the housing market cycle will begin. Furthermore, all property cycles vary in length.
How true is the great 18-year property cycle theory?
The great 18-year property cycle is a theory popularized in 1953 by British economist Fred Harrison. He asserted that housing prices fluctuate in a repeating pattern. The theory is nearly identical to the property cycle that developers follow today. Harrison highlighted two specific incidents where cycles repeated after 18 years in his theory. And while there is some indication that cycles typically last 18 years, it’s not a hard and fast rule.
What affects the property cycle?
There must be a catalyst to move from one phase of the property cycle to the next. Any number of events changes the phases of a property cycle.
Most recently, the COVID-19 pandemic was a big, singular influence on the market. However, there are usually a variety of smaller factors at play:
- Interest rates. A low-interest rates environment often equate to more buyers because borrowing cost is low hence it’s within reach of most. Conversely, a high-interest rate indicates fewer buyers.
- Global crises. From wars to natural disasters, there are a lot more than just pandemics than can affect the property market. Typically, they do this by disrupting the global supply chain.
- Economic health. The unemployment rate can be a massive factor in the property market. If the economy is doing well and people have a lot of disposable income, the market will prosper.
- Population. The population disparity between the young and the old can have a massive effect on the property market. This is due to the diverse housing demands that people of different ages require and the number of people in an area.
The 4 phases of the property cycle
The property life cycle follows four phases that we’ve cycled through many times throughout history and they’re a part of a constantly spinning cycle. So, despite its place at the start of the cycle, the recovery phase is considered the bottom. This is because, after the recession phase, the market itself is considered to be at its lowest.
Recovery
The recovery phase begins when the property market is devastated and continues while it gets better. The recovery phase is gradual and often takes the longest out of the four cycles.
During the recovery phase, many properties will be available for purchase at below-market value. So, with the right strategy, these properties can be sold or rented for a hefty profit during the next phase: expansion. Knowing the right time to buy during the recovery phase is key.
Expansion
The expansion phase is when the property market can finally be considered healthy. Some signals to look for include increased housing demand and surging numbers of renters looking to find available spaces. As a result, this is when property development is most active and lucrative.
If you paid attention during the recovery phase, now is the time to sell your acquired properties for above-market value. From construction to renovation, the recovery phase is when you should pay close attention to market trends and invest as you see fit.
Oversupply
Oversupply occurs when the property market has more properties and vacant rental units than there are buyers. Buyers had their choice of the housing market, and vacancies were extremely common. Oversupply is often caused by too much property development and expansion.
While it’s common for many investors to feel intimidated by increasing vacancies and selling off their properties at the first opportunity, this isn’t sound logic. Instead, we recommend that investors hold onto their properties during hyper-supply. This is the biggest benefit of knowing the property cycle.
Recession
The recession marks the end of the current market’s high. Supply overwhelmingly exceeds demand, and very few people purchase properties. Rent for some properties is lowered to attract new residents. For many, a recession is a time of panic. But because you know the real estate cycle, you should be confident that recovery will eventually come.
The most recent recession occurred as a result of the pandemic. The exact start of the next recession is always pure speculation. We won’t quite know when it will occur until it has started. The many moving parts of the economy that affect the property market to different degrees are partly to blame.
In summary
There are two possible options that property investors can consider.
- The first is to maximize ROI and save as much income as possible for that key moment during the recovery when they should scoop up below-market properties.
- The second is to start buying properties below market value early. You might see a massive profit if you have enough capital to renovate and maintain the property until the next expansion phase.