The ‘Next Property Hot Spot’ is a very overused term these days when discussing the next area of capital growth, whilst forecasts vary in terms of investment property returns, there are usually some pretty clear-cut structures that govern current price and potential price growth. Here are five key elements that go a long way in determining what areas are ‘hot’ or about to become ‘hot’.
Supply and demand
It’s all about supply and demand – the two basic premises of economics. Lower supply, or restrict it, and demand increases, you’re on your way to success. When you’re undertaking your research on an area it makes sense to look at how these two components work in conjunction with each other and make sure you are looking at possible injections of supply, new land releases, or downturns in demand or desirability. There are many different combinations that can ensure these two elements do, or do not, work positively together and it is your job as an investor to explore them. Though it is worth noting, supply of apartments may not necessarily affect houses – you will need to ensure that you think through the effect any new developments may have on your next purchase.
The criticality of infrastructure
Infrastructure is an absolutely critical part of any area’s growth.
Transport infrastructure makes remote locations more accessible; medical infrastructure generates modern health services and long-term employment; and resources infrastructure can spread economic benefits and jobs over vast distances. Infrastructure comes in many different forms, and each has the potential to create employment, or make an area more desirable.
Keeping an eye out for upcoming projects, particularly in areas you have already identified as being of interest to you, can be another boost.
If you can’t afford it, steer clear
Regardless of how many good indicators an area has, no matter how much growth it is expecting, if you are pushing yourself to the limit of your financial capacity to secure an investment property – you might just want to think again and look elsewhere, never over-stretch your borrowing capacity, look for a property a little more within reach. No area comes without risk, and it doesn’t make good financial sense to risk it all on the potential of capital gain. If you are still determined to purchase in a particular area, see if there is a lower-risk entry-level, such as a joint purchase, perhaps a smaller dwelling or a neighbouring suburb that is cheaper but may still have potential capital growth.
Past performance is no sign of future investment property growth
No matter how well an area has done in the past, or how far the prices have risen, you will need to assess it on its current and future qualities. Markets do go down and you may have already missed out. While regular upwards trending of the median property value can be encouraging – never assume that this will continue. Likewise, downwards movement can be telling you that the market has further to fall, however further research may show the reasons for any downturn. You’ll also want to be absolutely clear on what the median price is tracking before using it as any guide to a market’s capital growth movements, it might not actually be recording what you think it is.
Employment growth is essential
Lastly, employment is critical for multiple reasons. Income growth is one of the indicators that can be used to determine future capital growth. Without robust employment conditions, strong income growth is unlikely. Similarly, strong and diverse employment centres ensure a continuing flow of tenants and a steady wave of future home buyers who will bid against each other for your property. Decreases in employment, such as major companies shutting down, can have the reverse effect. Remember, if there are no jobs – no one can afford the properties.
By researching these five key factors, you can be well on the way to finding that next investment property hot spot, there are no certain winners but by doing your research thoroughly and diligently you will have the greatest chance of success.