Why identifying market trend is important - Part 2

A market trend in property is determined by a sound historical data, various economic and non-economic factors. We will assess in-depth each of these factors to better understand how it impacts the market trend starting from a historical data point of view.

The most common historical component used in identifying market trend is growth percentage. In general, this is categorised further as a short-term growth and a long-term growth. A 3-month growth % and 12-month growth % are both short-term growth which underline the recent performance and market activity in the subject area. A 3-year growth %, 5-year growth % and 10-year growth % are long-term growth which provide a broad overview of the subject area regarding its performance in contrast to time.

There are three distinct scenarios to examine in connection with a growth percentage figure from a 12-month to a 3-year, to a 5-year, and to a 10-year period.

1. Downward Trend

These figures that coincide with a downward trend suggest the subject area is performing at a greater rate at present when compared to the past. This is usually associated with the peak phase of property cycle where the risk of investment is high. The recommended investment strategy in this period is to buy and hold and is therefore more suitable for long-term property investors.

2. Upward Trend

These figures that coincide with an upward trend suggest the subject area is performing at a poorer rate at present when compared to the past. This is normally associated with the opportunity phase of property cycle where the risk of investment is low. The preferable investment strategy in this period is to buy and sell and is therefore better qualified for short-term property investors.

3. Curved Trend

These figures that coincide with a curved trend suggest the subject area is actively responding to the market equilibrium of supply and demand. This is mostly associated with either the growth phase or the correction phase of property cycle where the risk of investment is medium. Investing in this period is ideal for both short-term and long-term property investors.

We will continue our discussion and analysis on this subject in the next article.

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