The property lifecycle

Make a good investment decision.

Understanding the property life cycle can serve as an important investment tool for buyers, sellers and developers in the property market. The optimal time for buyers to enter the market is when the property life cycle is still near its trough. Sellers on the other hand would sell when the property cycle is nearing its peak.

Developers should enter the market when the property cycle is in the late phase of an upswing because the pricing at this stage makes new developments a lot more viable by increasing the profit margins. There is risk in entering at this stage though especially if the development has started too late or a delay occurs, pushing the development into the downside of the peak phase.

The daunting task of matching supply and demand of property is so for two main reasons: construction of buildings usually has a long gestation period and secondly because property has a longer economic lifecycle. Once an over supply has occurred in the market it takes many years to balance out.

Property lifecycles can be broken down into 3 distinct groups:

  • Office Property lifecycle
  • Industrial Property lifecycle
  • Residential Property lifecycle

Prior to 2000 these 3 property lifecycles moved in tandem with one another. Since then however, they have drifted apart with the residential pricing exploding due to the strong economy and the decrease in interest rates. During that time vacancies for office rentals were still high but in about 2004 to 2007 there was a change and we saw the office and industrial cycles move into an upswing.

When considering property as an investment you need to be sure of the trends and the cycles that your particular investment will experience. It is for this reason that we strongly advise new entrepreneurs to do their homework thoroughly before making investment decisions. It is better to work with a team of experts when analyzing land and construction of buildings. Entrepreneurs are often faced with the decision of whether to buy or rent. This decision can be a difficult one.

Entrepreneurs opting to acquire their own business premises stand to benefit from the following:

  • Their market and goodwill often evolves directly as a result of their business location and the synergy it derives through being close to the community (customers, suppliers, staff) as well as other complementing businesses.
  • Buying a property, the entrepreneurs will in time gain full ownership, giving them an asset capable of rendering a return in the form of a pension for retirement planning.
  • The expansion requirements of the operational entities might be in the nature of capital expenditure in terms of fixtures such as carpeting and lighting that serve to enhance the value of the property.
  • Ownership enables long term planning and control in terms of utilisation, subletting and tenant mix, thereby offering alternative means of optimising cash flow and capital appreciation.

It is for these reasons that Business Partners has developed unique property investment packages - which was created for the entrepreneur with a viable business, but has limited own contribution, or does not want to deplete his operational entity's cash resources and is unable to raise the deposit. Funding is also available for the entrepreneur with an exceptionally viable multi-tenanted property investment opportunity with an above average return on investment.

Investing in property can be a very rewarding experience and can generate substantial income in the long term but only if you make a good purchase. Give us a call if you are considering a property to invest in. Our funding offers ranges from R250 000 up to R20 million. We would be happy to assist you in acquiring your asset.

* This report was prepared by Anton Roelofse, Chief Operating Officer, Business Partners and can be viewed here: http://www.nineam.co.za/BusinessPartners/31-10-10/stories/story2.html

Source: Anton Roelofse, Business Partners