Real Estate Markets do not typically follow a straight line. The Real Estate Market typically follows a Cycles which are based on economic activity, demand of buyers, supply of developers, and confidence of investors. The market cycle is extremely important to understanding Sharjah’s real estate growth. Regardless if you are purchasing your first home or creating your investment portfolio, understanding the current state of the market will help with the decision of when and how to invest.
Understanding Sharjah’s Property Market Cycle Phases
A number of property experts use the concept of “market cycles” in analyzing the international real estate marketplace. Simply put, market cycles refer to the various stages (or phases) that property markets pass through in their life cycle. Commonly, there are four distinct phases of the market cycle: Recovery, Expansion, Hyper Supply and Correction. In each of these cycles, there are varying degrees of risk and opportunity, and therefore, savvy investors usually take the time to understand how the cycles operate prior to making an investment decision.
In recent years, the Sharjah real estate sector has undergone significant changes due to the addition of infrastructure upgrades, new residential communities, and increased regional investor interest. Due to these changing circumstances, identifying the market cycle has become very important to those wanting to predict future market directions.
In general, the recovery phase of the market cycle is defined by stable pricing of properties following a previous down turn. Gradually, buyer confidence builds back up and stalled projects are restarted by developers. Typically, the recovery phase in Sharjah follows either economic restructuring or shifts in regional investment flow. Those entering the market early during this phase may be able to purchase properties at relatively low prices, prior to the increase in demand throughout the market.
The expansion phase of the market cycle is generally the most active phase of the market cycle. Quickly, demand for properties will grow, construction activity will increase and transaction volume will also grow. Many of the newer residential developments in Sharjah have generated considerable interest from both local residents and foreign buyers during the expansion phase of the market cycle, which is when emerging communities are being explored for investment purposes. Generally, prices will grow steadily as the demand for properties continues to build momentum.
However, expansion cannot continue forever. The hyper supply phase of the market cycle is the next phase of the market cycle where too many properties are being built to meet current demand. As a result, competition for the sale of properties will become much greater. With the increased number of properties, the ability for buyers to negotiate for better prices will increase and growth of property prices may slow down. Monitoring development pipelines and announcements of new developments can help investors determine if the market cycle is transitioning towards this phase.
Finally, the market cycle reaches the correction phase. Prices may remain steady or slightly decrease as supply of properties meets demand. While some investors may approach this phase with caution, others may see opportunities for long-term purchasing based upon the fundamental value of the property, and not just the short-term fluctuation of the price of the property. Once the correction phase passes, the market cycle begins the transition back to the recovery phase, and the process begins again.
Knowing the phases of the market cycle provides the investor with a rational basis to make informed investment decisions during rapidly changing market conditions, as opposed to emotionally reacting to short-term news and media reports. Rather than reacting to the latest headlines, many professional investors analyze historical data, transaction volumes, rent trends, and development activity to approximate the current phase of the market cycle.
Why Market Timing Matters in Sharjah Real Estate
Timing is very important when investing in real estate. The timing of your purchase can greatly affect your ability to obtain rental income or long-term appreciation as you purchase the property. Investors that are able to understand what is happening in the market cycle will be able to purchase properties prior to rapid price increases.
The Sharjah real estate market has been especially attractive due to its lower cost of entry compared to neighboring Emirates. This cost of entry has allowed individuals working in Dubai but desiring larger living spaces to move into Sharjah. The continued population growth has created additional demand for well-planned residential communities.
As the market cycle expands, rental demand for investors in Sharjah is typically high. Individuals moving to the emirate create increased demand for rentals, which in turn allows for higher occupancy rates and more stable rental incomes. Many investors that invest in income-generating assets follow the expansion phase of the market cycle to find highly demanded neighborhoods.
Investors however tend to be very careful during the late expansion phases of the market cycle, since property prices may be at their highest level of demand. Market cycle analysts continue to try and determine where the market cycle is headed by tracking building and construction activity, new commercial zone developments, road expansions, and migration patterns to determine if the market cycle is transitioning into a new phase.
Infrastructure growth in Sharjah also affects the market cycle, as the expansion of roads, commercial zones, and mixed-use developments tend to create an increase in demand for properties in nearby communities. In some cases, these expansions can extend the expansion phase of the market cycle in certain areas while slowing down in others.
How Investors Use Market Cycle Indicators
In today’s world, many of us rely on indicators based on the data for making our decisions about investments and other activities. A number of those indicators help investors find answers to their questions about where the market cycle is at the moment in terms of interpreting all the signals coming out of the market. No one can say for certain which indicator will correctly forecast what will happen in the market; however, when you combine some of the indicators, you are likely to get more insight into your decision-making process.
One key indicator is volume of transactions (sales). If there is a consistent upward trend in sales volume over a series of three to four quarters, most people would view it as an indication of the market cycle transitioning into the “expansion” phase of the cycle. Generally speaking, increasing demand tends to be associated with increased investor confidence and increased levels of activity in the investment arena.
Rental yield is another very good indicator of where the market cycle is at the present time. For example, if rents are rising at a rate greater than property values, investors may view it as being in the early stages of expansion in the market cycle. Historically, higher rental yields tend to attract new investors who seek predictable income streams.
The third indicator involves monitoring the level of new construction permits and the number of development announcements in the pipeline. If new construction permits and development announcements are increasing at a rapid pace, analysts generally believe that the market cycle is headed toward the “hyper-supply” phase of the cycle. By paying close attention to the market cycle, investors hope to be able to predict future movements in the market rather than simply reacting to them.
In light of Sharjah’s continuously changing landscape, the above-mentioned indicators are extremely helpful. As new residential zones and mixed-use communities begin to appear across the emirate, understanding the larger market cycle will enable investors to identify areas with long-term growth potential.
Insights from the Experts
Keyspace Realty and Keyspace Dubai work closely with each other to observe the way the market affects demand for properties, price patterns of properties, and levels of investment activity throughout the region. Using transaction data, information about current and planned infrastructure projects, and demographics, we provide insight to help investors make sense of changes happening in the market.
Our research indicates that different Sharjah communities pass through the market cycle at significantly different rates, thereby enabling prospective purchasers to identify emerging opportunity areas before they become well-known in the overall real estate marketplace.
Everything Sharjah also serves a significant function in comprehending the local nature of the property dynamics by providing insights into the lifestyles of Sharjah residents, the growth and development of Sharjah neighborhoods, and changes in Sharjah’s infrastructure. Everything Sharjah serves as a resource to help residents, investors, and visitors to Sharjah see how the various parts of Sharjah change over time and how those changes impact the demand for properties and long-term market activity.
Long Term Perspective for Property Investors
The most successful real estate investor will be the one with the greatest amount of patience. While short-term changes in price can cause quite a commotion, the typical market cycle is measured in years and not months. When focusing on long-term trends, investors will typically make better-informed decisions for the simple fact that they understand temporary corrections occur naturally as part of every cycle in the market.
The property market cycle in Sharjah continue to transform as new developments shape the cities. Initiatives by the government to improve the overall infrastructure; provide support to economic diversification; and attract residents from other Emirates has increased the long-term outlook for the Emirate. These types of initiatives directly affect how the cycles through each community.
When an investor is studying the data and willing to wait patiently, their ability to understand the cycle in the market can be a major benefit. They do not follow speculative trends; instead, they analyze the supply pipeline; rent performance; and population growth to identify where the next opportunity may be.
Frequently Asked Questions
What are real estate market cycles?
Real estate market cycles are the repetitive stages of a property market’s progression over time (usually in the order of recovery, growth, oversupply, and then correction).
Why is it important for investors to know about the real estate market cycle?
Knowing the real estate market allows investors to better understand how to time their purchases and sales of properties, and thus understand future price appreciation and future demand in the market.
How long does a typical real estate market cycle take?
A typical real estate market will depend upon a variety of factors such as economic indicators and development activity, but typically a cycle will run from several months to many years until all stages have been completed.
Is Sharjah a good property investment right now?
Sharjah is a very attractive property investment area with its affordable prices, improving infrastructure, and increased investor attention from both locals and neighboring regions.
Can you ever be certain of your prediction of the market cycle?
No indicator can guarantee accuracy of future predictions; however, by using some form of analysis related to historical data (such as past transactions, past rents, and past supply), investors may be able to gauge where they are in the current stage of the real estate market cycle.
