Author : Homeloans SA
GOOD TIME to BUY PROPERTY
The Best Time to Buy a Property is when Media Reports, refer to the Property Cycle, as a “Buyers Market”. The Principle of “Supply and Demand” directly influences the situation. The more Properties available for Buyers to choose from, in a price range, the less likely a Seller will realise ‘an above Market Price’ for his Property.
When to buy property?
The property market – like the stock market – goes up and down over time to form a market cycle.
Property Market Cycles
The upward phase in the property market cycle can be recognized by high property price growth, low repo rates, high consumer confidence and stable economic conditions. During this time, the demand for property inevitably outstrips the supply, thereby affording stronger bargaining power to sellers. This phase is commonly referred to as a Seller’s Market.
During the downward phase, property price growth slows down. The loss in momentum is generally accompanied by higher repo rates, reduced consumer confidence and deteriorating global – and local economic conditions. It is during this phase in the property market cycle, that supply starts exceeding demand. The resultant shift of bargaining power from the seller to the buyer is called a Buyer’s Market.
Although logic dictates that you should ideally buy when the market favours buyers, there is an opportunity to make a play in a Seller’s Market too. We take a brief look at how profits could potentially be unlocked regardless of whether the markets are up or down.
Buyer’s Market Strategies
If you find yourself in a Buyer’s Market and in a position to see the slump through, it will not be a matter of whether you should buy or not, but rather what to buy and how much of it you can afford to buy before the balance shifts in favour of the sellers again.
South Africa is finding itself in a Buyer’s Market at present, meaning that you can cherry pick the best potential investments from the spread and drive really good bargains to boot.
Having said that, there are some properties you may want to be circumspect about during the current down trend. These include:
Fixer-upper, semi-completed and high maintenance residential properties.
Low occupancy commercial and industrial properties; and
Seller’s Market Strategies
If you have the appetite to buy during a Seller’s Market, you will probably need to be self-disciplined, quick on the draw and more opportunistic than usual. Timing plays an important role in Seller’s Market buying, as do fields of play.
It is commonly known that buying early during the up cycle and selling as close as possible to the cycle high, is a good investment strategy. If you intend making a short term investment during a Seller’s Market, a good safeguard would be to project at which point in the market cycle you will need to sell in order to turn your targeted profit. It could be wise to stick to this exit point when the time to sell arrives, unless the market forces strongly favour an extension in the investment period.
Less known is that there are particular times of the year that favour buyers in a Seller’s Market. These are:
High-days and Holidays: If a seller is prepared to see you over long weekends and at times such as Christmas Day or Easter, chances are that they are keen to find a buyer and that they would be more open in their negotiations.
Mid-Winter: Traditionally there are fewer buyers in the heart of winter than at the break of spring. Try approaching sellers towards the end of July (especially those of properties that came onto the listings two to three months earlier) in an attempt to secure better deals.
Fields of Play
The more profitable fields of play during a Seller’s Market will – under certain conditions – differ somewhat from the fields of play in a Buyer’s Market. You may want to keep an eye on:
Auctions: Auctions resulting from foreclosures and deceased estates sometimes afford buyers with funding in hand, the opportunity to acquire well-positioned residential and commercial properties at a reasonable price.
Pre-proclamation: Developers often afford buyers the opportunity to purchase property during the pre-proclamation phase. This normally involves a nominal deposit, which is held in trust until proclamation. If the development is in a sought after area, you could turn a profit soon after proclamation takes place.
Sales gone sour: Often, on the back of the sale of his or her ‘old’ property, a seller will purchase a new property. If the sale of the ‘old’ property sours for some reason, the seller may be faced with servicing the bonds on both properties. This could translate into a reduced price opportunity for you.
Futurist R.B. Fuller once said: “Don’t fight the forces; use them.” In property terms, it means that any time is a good time to buy and that there is always an opportunity to profit, regardless of whether a Buyer’s – or a Seller’s Market prevails.