The Property Clock – How to Use it to Buy Under Market Value
As a property investor, your goal is to buy at the right time so you can make a profit later. The concept of the Property Clock can almost certainly help you invest better in real estate.
Buy low and sell high.
That concept lies at the heart of investing in general, and property investing in particular. It’s why you spend so much time researching property markets and checking out median house price data.
You experience even greater benefits if you can buy at below market value.
The Property Clock is an excellent tool to help you to do that. This article looks at what the clock is and how it helps with Australian property.
What Is The Property Clock?
The Property Clock is a clever way to keep track of the property cycle. It tracks the following stages of the cycle:
- The boom period
- The downswing
- When the market goes bust
- The rising market period
At the 12 o’clock position, you have a market in a boom period. Property prices are as high as they’ve ever been and sellers reap the benefits.
However, that boom can’t last forever. Eventually circumstances change and the market enters a downswing. Price growth starts to slow and prices can even start to fall, either because the market’s less desirable or because it’s in need of correction. We saw this in late 2018 in both Sydney and Melbourne.
Eventually, the market reaches the bottom of the cycle. This is the “bust” period. At this point, property prices bottom out and don’t drop anymore.
This may be the best time for a home buyer to enter the market cheaply. That’s because the clock keeps ticking and the market enters a resurgence. For one reason or another, properties become desirable again and prices start rising.
Eventually, prices peak and the cycle begins anew.
It’s common knowledge that this cycle affects every property market in Australia, both on the local and national level. The differences lie in how long a region takes to go through the phases and the causes behind them advancing through the cycle.
Why Track the Property Market Cycle?
Tracking the property market cycle allows you to figure out the best times to buy and sell. If you’re aiming to buy below market value, you’ll usually want to buy closer to the “bust” phase on the property clock. You’re then in an ideal position to benefit from rising rents and capital growth as the market recovers.
But if you buy when the market’s at its peak, you’re unlikely to find great deals on property. This is the ideal time to sell if you hope to maximise your profits.
Several organisations, such as Herron Todd White, track these cycles so investors can make wise choices.
According to an article published in Property Observer in August 2019:
“Its latest National Property Clock suggests that markets are rising or recovering in regional centres such as Tamworth, Dubbo, Albury, and Bathurst in NSW…”
This regular report is an important tool for investors who want to stay on top of market movements. Not only does it show areas experiencing growth, it tracks areas that are in decline.
That brings us to what you really need to know as an investor…
How to Use the Property Clock
It all comes down to timing your purchase so you minimise expenses and maximise profits.
The Property Clock gives you a graphical representation of the state of a market at any given point in time. You can check a suburb against it to see what phase it’s in. And from there, you can time the market to ensure you’re getting the best value possible from the purchase.
Let’s say you’re looking at a suburb in Queensland. It’s currently tracking at 1 o’clock on the Property Clock. This means it’s starting a decline but it’s still near its peak.
Buying right now isn’t a good idea. The clock suggests there’s still plenty of room for prices in that suburb to decline. Buying at this point means you’re buying over market value in relation to what’s coming.
So you wait six months. When you check the clock again, the suburb’s at 6 o’clock. This suggests prices have bottomed out.
This may be a good time to buy if you’re anticipating a quick recovery. However, you may want to hold off a little while until the suburb starts showing signs of life again. It’s possible for a suburb to stay in a “bust” period for quite a while. This means you may struggle to attract tenants for any properties you buy.
After waiting a bit longer, you come back to the suburb to see it’s now at 7 o’clock. If you’re aiming to buy below market value, this may be the perfect time. The suburb’s started its recovery, but it’s still close enough to its bust period for prices to be low.
Buying at the Bottom of the Market
This is the tricky part. When you buy at the bottom of the market, there’s always a risk that it won’t recover quickly.
That means you need to look for signs of potential recovery before investing.
Possible signs include the local government dedicating money to infrastructure improvements. These often lead to businesses moving into the area, which boosts the local economy.
Low vacancy rates also suggest the market’s experiencing demand that supply can’t keep up with.
You may also look at the auction clearance rates. If they’re higher than 50%, the odds are good that the market’s on the rise.
Creating Your Strategy
As you can see, the Property Clock can be a helpful tool when it comes to property investing. However, using it is an inexact science.
It has its limitations. You need to do plenty of research beyond looking at the clock.
Plus, the Property Clock may mask opportunities within smaller suburbs or streets.
That’s where DG Institute comes in. We can show you how to use the Property Clock alongside other strategies to buy below market value and sell for a profit.
If you’re interested in learning more about property investment and profiting from distressed property, join the upcoming Real Estate Rescue webinar with Dominique Grubisa.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.