Real estate cycles are characterized by cyclical fluctuations and patterns observed in the real estate
market. According to experts, real estate cycles are influenced by various factors, including
economic conditions, interest rates, supply and demand dynamics, investor sentiment, and
government policies, hence duration differs from economy to economy. A typical real estate cycle
is composed of four different phases, namely: recovery, expansion, hyper-supply, and recession.
During the recovery phase, there is a low occupancy rate, moderate demand for housing, declining
development projects, and stagnant rental growth. However, this phase is considered a prime time
for investors to purchase properties from distressed sellers or invest in value-added properties.
In the expansion phase, demand for properties increases, occupancy rates rise, and rental prices
surge. Investors can reap benefits by selling discounted properties or developing new ones. On the
other hand, the hyper-supply phase occurs when the supply of real estate exceeds demand, causing
a decline in real estate prices. Investors should be cautious during this phase and ensure sufficient
liquidity. Properties typically boost in value during the expansion stage.
The hyper-supply phase starts when the supply of real estate in the market exceeds demand. New
developments and redevelopments during the expansion phase have caused an oversupply in the
market, and prices of real estate start to decline as supply overwhelms demand. Although rental
rates might remain high because of strong economic factors, vacancy rates will start to rise. The
increase in the number of new developments will begin to slow down as market inventory is high.
The hyper-supply phase typically lasts for a long time and usually occurs before the economy
enters the recession phase.
In the recession phase, the supply of properties overshadows demand, and real estate prices fall
dramatically. The real estate cycle will ultimately reach the lowest point in this phase before
starting again. These phases are not fixed and can vary in duration and severity depending on
economic conditions, market dynamics, and external events. In this period, a lot of investors buy
and hold properties, practice house flipping, and invest heavily in rental structures.