Understanding the Real Estate Market [Part 2]

The previous article has covered the basics of the real estate market to understand what people will tackle on when they get into property investment. This article will continue with some advanced things to understand about the property market such as vacancy rates, and the property cycle.

The percentage of available units in a rental property, such as flats or hotels, that are empty or vacant at a given moment is referred to as the property vacancy rate. It is an important indicator in real estate since it indicates the health of the rental market. A lower vacancy rate often indicates strong demand, whereas a greater rate may imply oversupply or weaker demand. Property investors, landlords, and property managers regularly watch vacancy rates in order to make educated pricing, marketing, and property management choices.

Vacancy rates are primarily influenced by a shift in the demand for properties.

An increase in Demand generally leads to the following chain of events.

• ↑ D reduces the number of existing vacancies (homes, apartments, offices).
• ↓ vacancies → ↑ in rents and ↑ prices as people bid for existing supply

An decrease in Demand generally leads to the following chain of events

• ↓ D causes and increase in the number of existing vacancies (homes, apartments, offices)
• ↑ vacancies → ↓ in rents and ↓ prices

The rate is calculated by dividing the number of vacant units by the total number of units and then multiplying by 100. Example:

1. Determine the number of vacant units at a specific time.
2. Calculate the total number of units in the property.
3. Divide the number of vacant units by the total number of units.
4. Multiply the result by 100 to get the vacancy rate percentage.

For example, if you have an apartment complex with 20 units and 3 of them are vacant, the calculation would be: Vacancy Rate = (3 vacant units / 20 total units) * 100 = 15%.

This indicates a 15% vacancy rate for the apartment complex. The formula helps property owners, investors, and managers assess market demand and make informed decisions about pricing and marketing strategies

A property cycle, sometimes known as a property clock, is characterised by recurring but irregular changes in the rate of all-property total return, which are also seen in various indices of property activity, but with varied leads and lags relative to the all-property cycle.

It is divided into 4 phases;

• Boom Phase: The current phase is characterised by strong investor and homeowner demand, which drives rapid development in real estate prices. A variety of factors impact this demand, including low borrowing rates, a strong economy, population growth, and helpful government policies.
• Downturn Phase: A phase that follows the boom and is typified by an oversupply of housing as a result of excessive development. Rents fall when demand falls and vacancy rates rise.
• Slump Phase: The phase starts when loan rates fall and unmet demand increases. Real estate market activity stabilises, property values remain relatively flat, and buyers and sellers begin to re-enter the market. Consistent employment and wage rise are frequent indicators of this.
• Recovery Phase: Rents grow, vacancy rates drop, and property prices resume rising as the market moves into this phase. Additionally, this period exhibits a larger growth in building activity and real estate development.

The property cycle also presents signs when the market is taken advantage by buyers or sellers. There are also recommended strategies on what to do in the property market during the buyers’ market and sellers’ market. However, it is best to do your own research before making a reformed investment decision.

It’s difficult to purchase in a buyers market when the news is terrible and there is no confidence in the economy, rents are falling, and there are vacancies everywhere. The key is having the confidence to make a purchase. People sell stocks and real estate when its value halves because they believe it will soon return to its original worth, but this is not the case. When the real estate market crashes, that’s when you purchase.

Choosing the right time to sell might be difficult. Everyone is incredibly self-assured, successful, and optimistic about their future success. They are unclear of what to do with the sales earnings and do not pay taxes. After some thought, they decide that they should have sold when the market fell. Successfully navigating timepieces needs a lot of boldness, expertise, and study.