Piggybank News

February 18, 2013

Riding the Property Cycle – the secret to making money in property investment

We are all familiar with seasonal cycles. From a very young age we learn that night follows day, spring follows winter,  harvest follows planting and so on… before the whole cycle starts over.  This very basic understanding of how cycles work can help with your investment decisions. You need to know when to plant the seeds (i.e. invest your money) at the right time so that it will grow and you can gather a rich harvest.

This may sound a bit simplistic but you really don’t need to be an expert stock broker to understand how the property investment cycle works. It is easy to look for clues that will tell you when a market has hit or passed the bottom in terms of prices. This is the point where a property market is beginning to grow and therefore where you should invest to get the best long-term return. Look at the signals all around you and this will help guide your investment decisions.

What makes property investment so interesting is that not all countries are at the same stage in their cycle.  In the EU most are heading into winter and prices are tumbling or at best remain static because few people are buying.  According to property investment company Colordarcy the 5 worst performing  investment areas of 2012 are all EU countries – Ireland, Portugal, Greece, Slovenia and the Netherlands. On the other hand if we travel to the United States, all indications are that after a long winter they are now in the spring (or at a stage where the market is growing). Property in Miami for instance has increased in value by 20% over 2012.

So what of the UK market?

The Nationwide House Price Index has recorded only slight variations in house prices since the start of 2011.  They showed a slight dip in prices overall in 2012 but in the final quarter of the year prices were actually up 0.5%.  The most significant changes have been the continuing increase in the north/south divide and the relative depression of the Irish, Welsh and Scottish housing markets.   This would seem to indicate (in England at least) a market resting at the lowest point of its cycle, poised for Spring growth. When combined with predictions that Bank of England base rates are unlikely to rise until 2017, strong rental demand and rent levels generally on the increase; it would seem that 2013 is a good time for  investors with a medium to long term view to investigate the UK  Buy to Let market.

Full Nationwide report can be downloaded here – House Prices Q4_2012

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