If there was a key to unlocking the secret of successful property investment it would have to be the much talked about property cycle.

It's a phrase bandied about as the answer to all of the market's quirks, slumps and mysteries. It's what leads commentators to predictions. It's also the cause of many a hasty sale by nervous investors.

Essentially the property cycle is the measurement from a peak in property prices through a slump, then a flat period and back to a peak again. And mastering the art of predicting this cycle is the key ingredient to successful property investment.

Here's AFR Investor's five-step plan to understanding and profiting from the property cycle.

1 Look to the past

History tells us that this cycle generally lasts for about seven years with three to 3 1/2 years of a slowdown and a flattening out of house prices, followed by 3 1/2 years of rising prices and so on and so on.

A timeline of the slumps shows one in 1974-75 then again in 1982-83 and again in 1990-1991.

It also depends on which state you happen to be in at the time. Sydney has generally been the first market to fall and to rise, followed by Melbourne and then the rest of the country behind that.

However, each market also operates inside its own dynamics, which can dictate the rise and peak of the cycle and its severity (see step 3).

2 Don't be fooled by the numbers

But here's where it gets tricky. If it were just a case of simple sums add seven and abracadabra you'll know exactly what the market is doing there wouldn't be tales of financial hardship during property slumps.

The last property cycle lasted about double that time; there were about seven years of slump followed by almost seven of growth. This cycle was characterised by a long recession with prices nosediving and then rising to record levels, which peaked in about 2001 in Sydney and Melbourne and in 2002 in the rest of the country.

Head of property research at Macquarie Bank Rod Cornish says the last cycle lasted about 14 years because the recession in the early 90s was so severe.

"It was the worst recession in the last 60 years and this meant that the downturn continued to linger. Then when the market started to heat back up again it wasn't tempered by any drastic interest rate rise."

KPMG property analyst Bernard Salt says unlike other cycles the last boom was helped by the huge number of baby boomers drawing on their family homes to invest in property.

3 Understand the triggers

Now that we've determined that it's not just a simple case of doing the sums, the next step to mastering the property cycle is understanding what triggers the peaks and the troughs.

The most obvious factor is interest rates. If interest rates go up, even slightly, then a nervousness and cautiousness creeps into the market.

"We stop seeing the herd mentality that had existed," Salt says. "People stop rushing in to buy just because everyone else is."

All prior slumps have been the result of a significant increase in interest rates and a period of recession.

A significant interest rate rise can make mortgage repayments impossible which then leads to a large number of homes on the market and a resulting drop in prices. But interest rates also affect general business confidence, which can see a high number of job cuts. This is, in effect, a double whammy with even more homes flooding onto the market because those left unemployed can't service their mortgages.

Migration, from overseas and between states, is another key factor. During the recession of the early 90s, Cornish says migration into Australia dropped from 170,000 per year to 30,000 per year. This impacted on underlying demand, which further debilitated the property market.

This can also be a factor on a state-to-state level. As a state heavily reliant on manufacturing industry and a weakening business sector that led to hundreds of job cuts, Victoria felt the recession the most. As a result this became a period of high migration to Queensland as people left their homes to search for work, which helped worsen the residential market in Victoria.

But just as economic factors can help send the property market into decline they can also help the market reach record heights.

The introduction of the GST in 2000 saw a flurry of construction activity as people tried to build their homes prior to its introduction.

The first home-owner grants also helped add steam to an already motoring market.

"When the federal first home-owner grant was introduced, the property market was already beginning to stir and it was like putting petrol on the fire," Salt says.

Salt believes it was large infrastructure projects that helped kick-start the last property boom.

"In Sydney it was the Olympic venue construction and in Melbourne it was Crown Casino and CityLink," he says. "These are multibillion-dollar contracts that pass on to a high level of employment."

4 Take notice of the now

Cornish says the first significant signs of a slowdown, and in some areas a drop in prices, was recorded in the second half of 2003 and has continued ever since.

"What is unusual about this slowdown is that it is not related to a recession or even a significant interest rate rise," he says.

He adds the slowdown was a result of investors leaving the market because of negative sentiment and owner occupiers because they were spooked about interest rate rises.

"Most of the country has been in a downturn for the last 18 months to two years."

Perth, however, is still climbing due to a late start to its boom and a strong state economy, which is fuelling immigration.

5 Determine the future

So what happens now? Like most things economic, the experts just can't agree, with two distinct schools of thought.

Australia is enjoying a period of strong economic stability with low unemployment. So that's a good thing for the property market, right?

Well, maybe not. BIS Shrapnel property analyst Angie Zigomanis says Australia's good economy will eventually lead to higher interest rates.

"We believe the strength of the economy through wage increases and subsequent inflation will see interest rate rises in 2006 leading to a further softening of the market."

Other analysts, however, predict if things continue without a significant interest rate rise then expect the slowdown to continue for the next few years, as the market adjusts, before starting to climb again.

"You can't stop a cycle," Cornish says. "There will always be a cycle, it will just vary depending on the economic conditions."

Most agree that the market will continue to run flat for the short-term as affordability adjusts. In Sydney, 37 per cent of a dual income is needed to meet mortgage repayments while in Melbourne about 27 per cent is needed. And although the median house price is lower in Brisbane, so are wages.

"For the first time in nine years Brisbane is less affordable than Melbourne, with 29 per cent of a salary needed to make mortgage repayments," Cornish says.

So following an adjustment of affordability and as long as we have good economic conditions then we will see another upswing in the medium term.

6 Don't forget about asset selection

There is one proviso to all of this cycle talk and that's ensuring correct asset selection.

"Picking the property cycle will mean nothing unless you buy a property based on sound fundamentals in the first place," Wakelin Property Services co-founder Monique Wakelin says.

She says that because we are seeing longer and gentler cycles than in the past "riding or picking the cycles" isn't as important. What is vital is asset selection in the first place. "Good property is a long-term asset and good property will always increase in value in the long term."

She suggests looking at "blue-chip" inner city markets, where land values are strong and rental demand is high.

What's the market going to do next?

KPMG property analyst Bernard Salt

"If the cycle theory is correct then there will be a property upswing beginning in Sydney in 2006 or 2007 before spreading to other parts of the nation. This would place the next cycle as running from, say, 2007 to a peak in about 2011."

Wakelin Property Services co-founder Monique Wakelin

"It will be steady as she goes for the next 12 to 18 months or so and then we will see a moderate upturn."

Macquarie Bank head of property research Rod Cornish

"We expect moderate capital city price movements over the next 18 months with continued price drops in weak sectors such as generic investment apartments in oversupplied locations."

BIS Shrapnel senior property analyst Angie Zigomanis

"We expect strong economic growth to maintain stable prices over the next 12 months, with prices expected to weaken in the medium term as higher interest rates impact on affordability."