How to find a hotspot… before it becomes a hotspot!
Imagine as property investors if we could predict the future!
We could identify the best hotspot locations around the country before they happen and hey presto – instant growth!
The problem with property hotspots is that once they become widely known as hotspots, investors flood in, prices rise and the best opportunities for maximising rapid growth have usually passed.
The key to finding a hotspot ahead of the rest is to identify areas which are experiencing a dynamic shift in population or growth trends, resulting in upwards pressure on rents and house prices.
How do you find such places?
Consider these factors when doing your research to identify the next hotspot before everyone else does.
Infrastructure investment. In metro areas, suburbs experiencing population growth are likely to be those undergoing urban revitalisation or new development. Regionally, large industrial infrastructure projects will bring with them large construction and ongoing operational and maintenance workforces.
Location. Look for areas with good transport connections – easy access to trains, buses, airports and key roads for example – close to schools or with good connections to the CBD. This will ensure the area is attractive to a wider population demographic.
Neighbouring areas. Areas already well known as hotspots, where demand continues to outstrip supply, pressure can cause spill over into adjoining suburbs and towns in close proximity. This means suburbs surrounding an area that’s in high demand may also start to benefit from house value and rent rises as buyers and renters overflow into these next closest locations.
Demographic appeal. Certain city suburbs will also appeal to certain demographics. In metro areas the FIFO worker population, for example, often prefers to live close to the airport, tertiary students close to universities and families close to schools, creating ongoing demand for housing in those areas. The best locations however are generally those that appeal to a wider demographic – from students to workers and families.
Industrial growth. In regional towns, strong population growth derives from industry growth. Towns on the verge of a population boom are those most likely to create positively geared property markets due to sharply increasing rents as demand for accommodation from the rising workforce outstrips supply.
New projects and workforce numbers. Look for areas where new projects have been committed and establish the proposed temporary and permanent workforce numbers. Identify where these workers will come from (how many will relocate from other areas) and how they will be accommodated. Consider that some companies may supply their own temporary worker accommodation villages which reduce the impact that workforce numbers can have on a town’s housing supply.
Multiple projects. For risk mitigation purposes, it pays to choose towns with multiple projects to reduce the impact project closures may have on the population. Consider the level and timing of future infrastructure spending and the size and diversity of the proposed projects in the area. Also investigate the financial strength of the key companies operating in the area and expected duration of any expansion works.
Population trend. It’s also important to examine the population trend to determine the sustainability of any increase. If a town’s population shows a historical downward trend then there is likely to be housing over supply which means the arrival of a new workforce will have less impact on the market.
Population trends and a variety of other useful information that will assist with your property research can easily be accessed from the Australian Bureau of Statistics (www.abs.gov.au).
Housing supply. Investigate the level of new housing development currently being undertaken in the area and if the current level could affect the demand/supply imbalance when it comes online.
Occupation and income. As a general rule, the more people earn, the more they will spend on housing. In metro locations, identify where there are growing populations of professionals and high income earners as they are likely to be contributing to increasing rents and house prices. Regionally, increasing numbers of FIFO and DIDO workers – one of Australia’s most highly paid groups – are a sure sign that rents and prices are on the rise, particularly if workers are being accommodated in town housing. Another precursor of a market increase within resource towns is whether major companies are offering subsidies to employees who purchase within the town. Company-backed home ownership is a sure sign of increasing strength and activity in the marketplace.
Landlord types. Look for areas where government housing is low. Areas with high numbers of owner occupiers can also be beneficial as it generally means better street aesthetics and neighbourhoods, helping to boost values.
Vacancy rate. Check the town or suburb’s vacancy rate. A low rate indicates an undersupply, a high rate indicates an oversupply. A consistent increase in population suggests that (if new development is constrained) supply will struggle to keep up with demand putting pressure on rents.
Beware the median price statistic. Rises and falls in average house prices can be grossly distorted. They can be dragged up by a handful of sales at the higher end of the market or dragged down by a string of sales of lower priced properties. Median house price growth/falls are not an accurate reflection of the market and do not mean that every house in that area has increased/decreased in value.
Property selection within a hotspot. Choosing a property that will appeal to the area’s demographic and the type of tenant you want is the final step. Talk to local property experts to determine what types of housing are in greatest demand and if there are any particular streets to avoid. In resource town hotspots there is an increasing trend towards new, well located properties such as luxury lifestyle apartments and large houses close to the ocean or town centre. Blue chip companies prefer this type of housing as it ensures they attract and retain their desired workforce.
Yield and capital growth. Gain advice from local property experts to gauge the rent you can expect for a particular property, the level of demand for the area and where the market is in its property cycle. This will allow you to determine what return you can expect over your intended holding period.
Each and every year hotspot towns emerge around the country with the ability to pay large dividends to investors willing to spot the signs, research the areas and ultimately purchase in a location that ticks all the hotspot boxes.
Take these factors into account when conducting your research and give your next investment purchase the best chance of featuring in the next emerging hotspot!
New Infrastructure Investment Signposts Continued Confidence in WA Mining Towns
Property buyers can get a good forward indicator of future trends in mining towns by looking at investment in key support infrastructure such as airports.
Airports are now the life blood for mining towns as they are used to transport people, equipment and supplies to these remote regional areas.
It was therefore very significant that Qantas has just announced a major multi million investment in its Perth terminal to cater for future demand resulting from the resources boom.
Qantas has invested heavily in regional WA, having expanded QantasLink and Qantas capacity over several years and is now operating more than 280 return flights with 75,000 seats to regional WA every week.
According to Qantas chief executive Alan Joyce, the airline recorded double digit growth annually over the last five years in WA and believes growth will continue at a rate of 10% for the foreseeable future due to the resources boom.
As a result of this growth, Qantas is enhancing facilities in Terminal 4, its dedicated terminal at Perth airport, and from February, Qantas will expand its operations into the adjacent Terminal 3.
Looking to long term trends, Mr Joyce supports the need for a third – and second parallel – runway at Perth to handle rising future air traffic demand flowing from the growth in the resource sector.
With major companies such as Qantas now investing for future growth flowing from the long term expansion of the resources sector, it only makes sense that property investors should take their lead by investing in housing which is also a major support service.
In late 2012, property investors were bombarded with negative news about the end of the mining boom based on a slump in iron ore prices.
However, this slump only proved to be a temporary phenomenon with the benchmark price of iron ore now above US$140 a tonne.
Strong commodity prices will see a rebound in investment in mining regions during 2013. This trend is already underway with Fortescue Metals announcing that it will recommence expansion of the Kings deposit at the Solomon mine hub after it was suspended late last year due to low iron ore prices.
This increasing investment comes at a time when exports of iron ore from the Pilbara are already at record levels. Some 25.999 million tonnes of iron ore was shipped from Port Hedland during last month – the highest monthly trade in its history.
Therefore, the outlook for the Pilbara real estate market in particular, looks very positive as we enter 2013 and property investors in the region can look forward to rising capital growth rates and returns based on continued new investment in the region and support services.