Anyone who has ever been involved with property, regardless as a homeowner or an investor, understands that real estate has a cyclical market movement (Do you want to know where we are now exactly in the Malaysia’s property cycle? Click here). There are various factors to be taken into consideration when you plan to buy/ sell your properties but the most important one will be the current state of the property market. This is because the timing of the market can have a major impact on your purchase price/ desired sale price.
The property market is often referred to in a metaphorical temperature sense as being either hot (seller’s market) or cold (buyer’s market). From an investment perspective, the difference between a hot and cold market is a huge one. If you buy at the wrong time, you might get yourself into financial trouble especially if you are buying at the peak of the cycle and vice versa if you choose to sell at the wrong time, you could end up making much less profit from your investments. Hence it’s important to study the current property market to avoid and minimize making any huge investment mistake.
Thus it’s rather important to understand the market forces at play in both buyers’ and sellers’ market.
What’s a buyer market (cold property market)
The term “buyer’s market” simply refers to when the conditions are much favourable to those who are buying property (purchaser). This occurs when there are more housing stocks in the market than there are potential buyers to purchase them (supply greater than demand). Buyers will have a wide range of properties to choose from and will face little competition. This would be a good time for first-time home buyers to enter the market, as they can potentially find their dream home at a lower price because they will have greater negotiating power.
Photo by Anthony Quintano/ CC-by 2.0 / Image cropped from original
In a cold market where property transactions are slow, sellers who want to sell their property fast will be more open to negotiations that favour the buyer, developers will also provide more freebies and discounts in order to attract sale, this will lead to buyers making purchases for less than the original listed price. The price of a well-kept home in even the most desirable neighbourhood may decline as home owners become eager to sell their property.
What’s the sign
Some of the indicators of a buyer’s market are:
- A challenging market where there is lots of ‘For Sale’ signs that are up for a longer period.
- The amount of inventory on the market spans over a longer period of over a year & more
- More auction properties in the market
- Massive discounts and incentives provided during project launches
- Listing prices are lower than previous sale prices
- Property transactions drop as fewer people are buying homes
- Average house prices stagnant and starts to fall
- Real estate advertisements are more prominent in a bid to attract buyers
- Housing loan available are rather tight as banks remained cautious
“The Bigger the CHALLENGE, the bigger the OPPORTUNITY”
If you would like to learn the various investment strategies to benefit in a buyer’s market, click here.
What’s a SELLER market (HOT property market)
On the other hand, when the property is “hot” it’s a good time for investors to sell their properties. “Seller market” occurs when there are more buyers looking for property than there are properties up for sale in the market (Demand greater than supply). This fear mentality then leads to potential buyers who are willing to pay more than the listed sale price in order to secure the property they want. Buyers will face strong competition. This will be a market favourable to seller as they can often sell off their property quick with a higher price than they had expected.
Contrary to the buyer’s market, a seller’s market indicates a housing shortage in locations that are either already very popular with homebuyers and investors, or rapidly gaining favour for some reason.
What’s the sign
Some of the indicators of a seller’s market are:
- When compared with previous years or months, the number of listed homes on the market is low
- Fewer than six months’ worth of inventory is currently on the market (homes are selling faster)
- Listing prices are higher than the prices of prior sales (rising in average home prices)
- Higher property transactions
- Less massive advertisements in the market
- Long Q during developer’s new project launches
- Less freebies and incentives provided by developers
- Bidding war is back and sellers no longer feel pressure to sell off their properties
- Vendors are more likely to stick to their guns when it comes to negotiations, confident that increased buyer activity will result in an optimal sales result for their property.
There are many factors that will influence the property cycle which includes land prices, mortgage interest rates, employment growth, investment growth, construction activity, economic growth, and government assistance programs for first-time home buyers, government budget, bank lending rules, tax etc.
Buyer’s and seller’s markets don’t last forever. It’s hard to predict how fast the market will correct itself and you might end up waiting months or years for things to change. And when circumstances do change, it may not be in your favour. This is an important factor to consider when you’re deciding when to buy or sell real estate unless you know the time in the market. Click here to find out more.
We were often told that, “make money when you buy a property, not when you sell a property”. So apart from knowing the time in the market and the market forces don’t forget to do a full research and site visits on the properties that you intended to buy which includes factors like the occupancy rate, take-up rate, surrounding amenities, infrastructure, future plans, house condition etc. Make sure you do a full calculation on the ROI of your investment and have an exit strategy in mind before investing.