21 Mar when should I buy or sell an apartment?
For home occupiers of apartments, the decision to buy or sell is driven mostly by life circumstances such as work, family, finances, love (or not) and lifestyle and usually not by economic or market cycles.
Property investors have the option to buy, sell or hold available to them almost at any time so they feel the need to track and react to market cycles. Savvy property investors take a long-term view and don’t trade in and out very often. They tend to debate what property to buy and when.
Property is not really a trading asset like shares where the costs of a transaction is minimal and entering and exiting the market requires less time and effort. In recent years as apartment have become more commoditised the question of the best time to buy and sell has become omnipresent. Market commentators and investors scrutinise potential future cycles of apartment values looking for signals on its direction.
As we have discussed there are significant costs and time involved in trading property. There is the risk that after exiting the market it rises more than your alternate investment meaning your apartment investment dollar is going backwards in real terms.
So the question to buy or sell is not so much about short term market cycles but more about longer term macroeconomic and socio demographic trends. If however you are still keen to look at market cycles to help you decide when is a good time to buy, sell or hold, I can offer the following general market comment.
The question of entering or exiting the property market has been heightened by the press which has been successful in dampening apartment market sentiment. From this, most people are very aware of the strong future supply of new apartments predominately in and around the CBD capitals.
Few people mention or consider the apartment demand side of the equation. That is because it is virtually impossible to quantify. Australian Bureau of Statistics calculate net migration to Australia for the year ended September 2016 was 348,695 (1.5% increase) with Victoria having the biggest increase of 127,498 (2.1% increase) over the same period which is a record high for Victoria.
In addition, there is a change in living choices flowing to apartments at unprecedented levels, a demographic shift to more single and smaller households than traditional families, a rapid increase in the sale of “off the plan” apartments to owner occupiers, and a demand for more affordable housing. All these things fuel apartment demand.
There are many things which will limit future development (supply) like banks tightening the rules on residential lending, greater town planning controls, apartment design guideline improvements, plus off shore buyer tax increases.
The latest pain vs gain report from CoreLogic which compares all sales for a loss vs sales for a gain is very telling. It reminds us that property is a long-term investment. During the first 3 months of 2017, the average ownership period for someone selling an apartment in Melbourne for more than they paid, was 7.5 years vs 5.7 years for those selling at a loss. No surprise there. The proportion of apartments selling for a loss, was 11.0% in the March quarter. The percentage of loss making sales for inner Melbourne declined over the 12 months to March 2017 (ie less apartments selling for a loss).
It’s very likely the confluence of issues giving the market cause to pause will temper new apartment development, which along with positive influences on the demand side of the equation, will keep the market more balanced, than oversupplied.
So in answer to the question, “Should I sell” will depend of course on your circumstance. Just limiting the comment to the apartment market however assuming you purchased an apartment as part of a balanced investment portfolio, property will play its role given time. Also the total cost of selling and buying again is about 8% – 10% of the property’s value, so by selling, you are effectively saying the market will fall by more than 10% and you will be able to exit and enter at the right times to capture it. Otherwise you may have decided to re-weight your investment exposure away from property longer term.