Warren Buffet famously said investors should be “fearful when others are greedy, and greedy when others are fearful.”
It’s definitely food for thought, particularly at this time when the property market is filled with rumours of an imminent crash.
During COVID, it’s no secret that real estate has been impacted. However, if you familiarise yourself with the concept of the property clock, you will see that there are some positive opportunities being presented.
What is the property clock?
It happens almost without fail. The Australian property market follows a regular ‘boom and bust’ cycle, while steadily rising over time. Sometimes booms last for a long time, as places like Perth experienced between 2000 and 2010. Sometimes the ‘bust’ seems endless as well… hello again Perth. But eventually, unless a suburb becomes a ghost town or its main industry comes to a halt, the pendulum swings back.
The property clock refers to this cycle. While the influencing factors can be different, the clock ticks on past the 12 o’clock ‘peak’ in prices, down to the 6 and back up again. At 3 o’clock, the market is falling but it hasn’t bottomed out. At 9 o’clock, it is heading towards another high.
What’s funny is that people generally become used to buying property when prices are at their peak. They see others buying, watch prices going up and rush to get their own piece of the great Australian dream. As a result, prices climb even higher.
When prices begin to fall, most buyers do the opposite of what they should. They panic and hold off making a purchase. This leads to further falls as fewer buyers are on the market.
Those who have good knowledge and a calculated investment strategy find that the time to be active as a buyer is after ‘3 o’clock’. You can see how this reflects Warren Buffett’s famous quote about swimming against the tide of popular behaviour.
When you learn to recognise the cycles of the property clock, you will be aware that even if you buy a property and it drops in value in the short term, if you have chosen carefully in a good area, the value will be restored over time.
COVID and the property clock
With the COVID outbreak hitting the economy hard, a dip in real estate prices has been inevitable.
But while the headlines are declaring “Housing values drop”, it’s actually not that bad. In Melbourne, for example, recent stats show that the average price of a home fell by 1.2 per cent in the month of July. While that’s not the best news, it indicates to me that the market has stalled, not taken a nosedive.
Right now, the property clock seems to have run out of batteries. It’s almost like someone has switched it off and headed home to self-isolate. While there’s no such thing as a crystal ball, my thoughts based on experience in the property industry are that as soon as COVID restrictions ease, that clock will be fired up and will head towards another peak.
Should you buy property in 2020?
If you have been planning to buy or invest, if you have a decent deposit and if you are confident you will still have a job for the near future, now may actually be a great time to make a purchase.
With limited buyers out there, you are facing less competition. What’s more, due to restrictions around open homes, many properties are being listed without being advertised. If you work with a buyers agent at Alleura or have good real estate agent connections, you may be able to make an offer ahead of the competition.
If you’re in an area where auctions are also cancelled, if you are not comfortable bidding you may now have a chance to negotiate. You can do this either with the help of a buyers agent or directly with the selling agent if you feel confident doing so.
We’re definitely not out of the woods yet with COVID. However, with prices stalling or dropping, you may look back at this period as your lucky window. Speak to your financial advisors and professional property contacts to work out a strategy that’s right for you.
Want to speak to a property expert? Book a free 15 minute call with Alleura to find out more about our project management and buyers agent services.
Disclaimer: This article is based on my opinion and personal experience as a property investor and project manager. It is not intended as financial or personal advice.