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A Look at the Investment Cycle for Investors

Property investment, on the face of it, might seem to involve a lot of luck. But the truth is that, like a lot of things in life, the market moves in cycles. And it is understanding this investment cycle that is the key to being successful in the market.

Through an understanding of the property cycle, and being able to ascertain where we currently are in the process, good investors are able to work out when is the best time to buy, sell or hold on to property. Of course, you have to be aware that although the cycle exists, the timescales can vary according to the prevailing financial and political conditions. However, all of this can be integrated into a more comprehensive understanding.

The four phases

There are four phases of the cycle with phase one beginning after a market crash or slump, such as the one we saw happen on a global scale in 2008. The market falls, investment dries up, banks become more cautious about who they lend to and property prices fall. This presents an opportunity for people to enter the market and for people with existing portfolios to expand. This is the start of the recovery.

As the recovery picks up steam then the market begins to attract more investment, leading to a time of boom – the second phase. This can be a short period so being able to identify the peak of the boom is one of the keys to maximising profit. Conversely, this is not a great time to invest as it will reduce profit at a later date.
Following the boom, an excess of investment and construction of new properties means there’s a levelling out of prices as the market begins to reach a saturation point. The market slows, prices begin to level off so it’s not a good time to sell.

Of course, the final phase of the market is a recession, when falling prices undermines the confidence of investors. Prices begin to fall as a result of falling demand. This is the trickiest part of the process for investors, and if you have failed to prepare your portfolio you could be in trouble. So, the lesson is to make hay when the sun shines. Because if you can make it through this most difficult part of the process, then the cycle begins again and there is some big money to be made.

Find out more
If you would like to know more about the market cycle or to talk through how the market responds to the Norwich area, get in touch with our team of property experts today. You can also get a copy of our full investment cycle infographic with more details about the four phases and what to expect.