What Is The Commercial Property Cycle?

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What Is The Commercial Property Cycle?
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There are three phases of the commercial property cycle that you need to know about before investing in commercial property. It’s vital you know about this cycle as the value of commercial property will change with the phases. If you invest at the right time, or bear in mind the fluctuation of price that occurs with the different phases when looking at the price of the property in the current phase, you can make informed investment decisions. It’s also worth noting that different people use different names for the different phases of the cycle and some prefer dividing it into four phases, but what is described is actually the same cycle.

Slump/Recession

This happens after property prices have risen so much that property has become overvalued. This usually happens after most banks have given loans to people on too lose terms and then suddenly people realize they can’t really pay them off when the economy goes down a bit. As a result everyone tries to sell, or end up with a  foreclosure if they can’t pay their mortgage, which in turn leads to the bubble bursting as prices tank.

  • Property value goes down
  • More houses are available on the market
  • Rise in foreclosures
  • Less demand to buy properties
  • Banks become incredibly cautious and don’t easily hand out loans

Recovery

This happens after the recession has hit its low point and property prices are starting to stabilize as the economy starts to rise from the ashes and people dare to invest again.

  • Property value slowly increases
  • The economy is starting to stabilize
  • The demand for property is slowly increasing

Boom/Expansion and Over Expansion

The property market is on a high again.

  • Property value is steadily on the rise
  • It’s easy to get mortgages from the bank; downpayment is usually lower and/or the terms for getting a loan less strict
  • There are less foreclosures on the market
  • Property on the market sells quicker
  • Towards the end of this cycle property is overvalued again
  • People tend to remortgage their houses to get money to spend elsewhere

When to Buy and Sell?

Of course you want to buy just as the recession/slump hits rock bottom and starts to rise and sell at the top of the boom/expansion. However, you can make money on property at any time if you buy for the right price in the right area, where demand continues to rise, even as property value starts going down. Also, if you are buying a property and doing it up, the value of the property still goes up. Whenever you buy a Commercial Property, if you can hold onto it for long enough for the market to rise again, renting it out for a fair price in the meantime, you can still make money. It all depends on what strategies you employ.

Author Info Nitish Khannanot found
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