07 Feb How to Spot a Good Growth Area
Picking the next Property Hot Spot – How to Spot an Up-and-coming Growth Area
Whether you’re buying a place to live or purely to invest in, a rewarding sale price is something everyone hopes for in their property’s future.
Many investors specifically seek out up and coming ‘property hot spots’, looking for rapid growth and the ability to sell up and profit in a relatively short period of time.
But how do you predict the next property hotspot? What sort of research should you be doing, and what signs should you be looking out for?
Whether you’re looking at purchasing in a city suburb, or looking further afield at regional cities and towns, how do you narrow down which areas to consider, and which ones to avoid?
1. Read up on Industry Reports
Recent property industry reports should be your first port of call. State-based Real Estate Industries, property and finance magazines and data analytics groups like CoreLogic RP Data publish regular reports online. These reports examine figures such as trends in prices and clearance rates, fluctuations in rental values and housing supply. Learning to read patterns in data is an essential skill for all investors, and a sound way to assess possible growth markets.
2. Look for Large Infrastructure Projects on the Way
Recently announced major infrastructure projects are key to identifying growth hotspots both in city suburbs and regional centres. Major road and public transport services and areas earmarked for large residential/retail developments are good indicators that an area is likely to see a spike in housing demand.
Areas once considered ‘out of the way’ or even ‘undesirable’ can experience rapid transformation if they can provide a more convenient commute for workers and a more appealing lifestyle.
You should also consider expanding your search to adjacent or accessible suburbs that could still benefit from new infrastructure, despite not being at the centre of it.
3. Seek out suburbs poised for gentrification
Gentrification has transformed many suburbs in recent years from places previously shunned by property buyers for having a poor reputation, being run down or dominated by industrial zones. But if these suburbs are in a location with obvious lifestyle benefits, especially proximity or access to the CBD, urban renewal is often inevitable, with warehouses being turned into luxury apartment complexes and grimy pubs being replaced by chic cafes. Inner city suburbs like Redfern in Sydney, Melbourne’s Richmond or Brisbane’s Bulimba are prime examples.
If you’re trying to predict which suburbs will be next to gentrify, look for areas that have been considered ‘affordable’ in the recent past, and check out how property prices there have moved in the last couple of years.
Next, look into the demographic profile of the suburb. An increase in the population of young residents with mid-high incomes is a pretty good indicator of upcoming gentrification. If you’re seeing large numbers of new homes being built, old, run-down properties being renovated, and cool cafes springing up on every corner, there’s a good chance this suburb is about to be the next big thing.
4. Follow the Ripple Effect
If you’ve just missed out on the latest hotspot and prices there have gotten too steep, you might still be able to take advantage of the area by investigating the surrounding suburbs yet to experience a boom. Finding the ‘next best’ suburb isn’t an exact science, but with some research you might be able to narrow down which suburb is likely to take off next.
1. Firstly, find booming suburbs. Check out recent sales data and focus on those that have shown impressive growth over the last 12 months
2. Look into the cause of the recent growth. If it’s because of long-term infrastructure improvements, these are likely to benefit adjacent suburbs (or parts of those suburbs) with good access as well, and growth is likely to follow.
If the boom is due to a spike in sales because of land or development releases, this isn’t likely to affect property prices in neighbouring suburbs much, or at all – unless they’re earmarked for similar development.
3. Look for indicators that a ripple effect will occur. Typically, the suburb or town should have the same type of growth drivers as the boom area (eg. distance to the CBD, or access to transport), and appeal to the same demographic.
4. Once you’ve identified potential hotspots, look for negatives that might be an obstruction to the ripple effect.
These could include things like ‘undesirable’ infrastructure – such as a planned motorway slicing through the suburb. Investigate any signs of an unsteady economic landscape on the horizon (such as a large nearby employer shutting down – see the rise and fall of the WA mining boom for a prime example). Another thing to watch out for is large number of planned developments that could lead to an oversupply which flatlines property prices in the area for some time.
5. Get Advice from the Experts
While doing your own research is essential, there’s nothing better than getting advice from experts in the industry. Not only can they share their professional analysis and insights, they can also help you with the next step, which is finding a property that’s appropriate for your needs. Despite the hype, location isn’t everything. A good area isn’t necessarily going to be enough to save a bad property!
Buyers agents often have access to data and reports before they become available to the general public, so enlisting their services can help you get in front of others in the game.
Picking the next hotspot is all about staying one step ahead of the market. Getting it right is never guaranteed, but the more informed you are, the better your chances are of hitting investment property gold.