What is a property investment hotspot?
By way of providing a simple definition, a property investment hotspot is an area or suburb that has been identified as having potential for stronger growth (short or long term), compared to the rest of the market.
There is no exact science or mathmatical formula which provides a firm set of criteria or perameters to identify a hotspot. In reality, a property investment hotspot is identified by assessing all information on hand including both quantitative and qualitative data. This includes firm data such as sales statistics, rental returns and capital growth combined with factors which are a little harder to quantify such as culture, lifestyle, amenity and a sense of community.
I have outlined below a list of ten criteria that we at Investor Assist use to help identify if an area is a potential hotspot. The list is certainly not exhaustive and we are yet to find a suburb that ticks every box. If you are lucky enough to find a suburb that meets every criteria – you have not found a hot spot, you have found a gold mine! But if you think a suburb or area achieves three or more of the following criteria, it is definitely one to watch.
1. Created or driven by a reputable developer
If you are looking to invest in an area, particularly a new suburb, check out the credentials of the developer and make sure they know what they are doing. You are safer to invest with a developer with an established, proven reputation and a track record for developing award-winning estates. Some of the better known developers to look out for in WA include ABN, Peet, Stockland, Satterley, and Mirvac.
2. Part of a well planned community
A reputable developer will create a well-planned community which is important to sustain the long-term value of your investment. Make sure you have a solid understanding of the overall estate masterplan and keep an eye out for well planned road networks, cycle paths, shops, schools, community amenity and what percentage of the overall estate has been retained or dedicated to public open space and parklands.
3. Views or proximity to the coast
Australians have always had a love affair with the coast and living by the beach. Plus property values speak for themselves – the closer a property is to the beach, the more valuable it is. The same goes for views. So, if you are able to invest in a property that will benefit from a coastal lifestyle or is surrounded by views of natual bushland, they are always sought after and retain their value more than homes that have nothing to offer.
Affordability is important for any investment. You do not want to be overstretching yourself and there needs to be evidence of value for money for an area to be deemed a property investment hotspot. If you are investing in a new estate you do not need to build the best house in the most expensive street. Often a more affordable property a few streets back will prove to be the better investment.
5. Evidence of strong sales or growth
A property investment hotspot is only a hotspot if it still offers potential for price growth so if properties are now selling for a premium, the horse may have already bolted and prices in an area could be maxed out. This often happens if you are one of the last to find out about a particular hotspot. It is better to get in early. That being said, you also don’t necessarily want to be the first person to invest in an area or new land estate. It is important to see evidence of sales and demand before investing your hard-earned money. You want to know you are investing in a solid community and your property won’t be the only house standing in a potential ghost town. This will do nothing to attract tenants or solid returns.
6. Existing or planned infrastructure
Proximity to exisiting or proposed infrastructure is important for any property investment, regardless of whether you are investing in a new or established community as it increases the value and appeal of a property. Infrastructure includes shops, cafes, schools, medical facilities, parks, sporting facilities, community amenity and more. Convenience can add a great deal of value to a property, in terms of both value and rental returns.
7. Easy access to existing or proposed public transport
Similar to proximity to infrastructure, it is preferable for a property to have easy access to existing or proposed public transport. There is a reason why properties closer to train lines are more valuable – people (including tenants) like to be able to walk to train stations and have access to a wide range of attractions. Have you noticed that whenever a new train station is announced it generates a flurry of interest in the surrounding real estate? This is because knowlegeable investors and property buyers understand the significance of the location.
8. A sense of community
You can’t put a tangible value on it but everyone likes to be a part of safe, welcoming and vibrant community and this can greatly enhance the value of your property investment. If you invest in a high crime area or near schools with a poor reputation, this will do little to enhance the value of your property or attract quality tenants. Always research the community, not just the properties in it.
9. Culture and Lifestyle
Similar to being surrounded by a strong sense of community, a strong sense of culture and lifestyle will enhance an area’s reputation as a property investment hotspot. Just think of many of the most popular suburbs in Perth such as Leederville, Mt Lawley, East Perth and Victoria Park – they are all popular because they can offer vibrancy and culture in the form of restaurants, cafes, retail outlets and entertainment. These suburbs are out of the reach of many investors and your chosen suburb does not need to provide culture to the same standard – but everyone likes to have at least one local café, shop or restaurant close to home.
10. The Halo Effect
A smart way to identity a potential property investment hotspot is to look at the areas which have recently enjoyed accolades and popularity or sustained capital growth. Once an area has ‘maxed out’ in terms of price, it no longer has value as a hotspot. However, areas surrounding an existing hotspot often benefit from what is known as the ‘halo effect’ which can increase their value too. You can read more about the ‘halo effect’ here.
As a general rule of thumb, (and based on the ten criteria listed above), below is a basic guide to assist with evaluating if a suburb is worthy of being deemed a ‘hotspot’:
- Three or more features – definitely a suburb to watch;
- Five or more features – most likely qualifies as a hotspot;
- Seven or more features – it’s a hotspot!
- Ticks all the boxes – invest, invest, invest!!
One of the critical things to remember about identifying a property investment hotspot is that the prediction should not be highly speculative, should not be high risk and should not be for the purpose of seeking a short term investment gain. Any attempt to identify a hotspot should be a measured, carefully calculated assessment of an area’s strengths and potential risks.
This means that some areas which meet a number of the criteria, such as a mining town experiencing a ‘boom’ (as was the case in recent years), should be approached with caution as they are deemed higher risk that others. As previously mentioned, it is important to carefully assess all strengths and potential risks relevant to an area before an investment decision is made and you should always be willing and ready to invest for the longer term. Property investment hotspots can be given a bad name by businesses or agents who are more willing to spruik an area to generate sales, rather than genuinely assist investors to make a smart investment decision.
Where to find a property investment hotspot in WA
Now that we have helped you to define or recognise some of the features that result in an area achieving ‘hotspot status’, you probably want to know where in WA you can find one. Right?
Well, my easiest answer is don’t worry about it. No one has a crystal ball and you are not expected to be an overnight expert so save yourself countless hours of research and stress and let us take the hassle out of the property investment hotspot identification process for you.
Investor Assist has already identified a number of property investment hotspots for you. The broader ABN Group together with our Investment Specialists are dedicated to this job 24/7 and are constantly on the look-out for the best lifestyle and investment opportunities across WA. We have identified areas throughout the metropolitan area, spanning from north to south, as well as in the south-west of WA that we deem to have excellent investment potential.
Alternatively, if you would like would to discuss any of the information included in this resource, one of the expert members of our team can be contacted here.