Finding a hotspot in real estate is the goal of any property investor. Investing in these locations is an excellent way to make massive profits in future.
Australia’s property market has seen a significant increase in buyer interest, sparked by the pandemic. However, buyer preferences have shifted demand away from the inner cities and into the suburbs and metropolitan fringes.
Low financing prices, travel constraints, and the opportunity to work remotely are likely the three most important elements driving this spike.
One of the most critical skills an investor should have is predicting and understanding the market.
This means identifying which location is a potential real estate hotspot and taking advantage in good time.
Unfortunately, no one appears to be a clairvoyant who can predict what will happen in the future with total certainty. However, there are indeed ways to make an informed judgment.
Let’s explore what hotspotting in real estate is and how property investors can benefit from it.
Next Steps: If you’re planning on investing in Brisbane real estate this year, ensure you’re well-informed. Dive into our dedicated article on the Best Suburbs to Invest in Brisbane 2023 for an in-depth view.
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What is a hotspot in real estate?
A hotspot in real estate is a location that is not as well-known as typical crackerjack districts. They are often identified as underperforming locations.
It could be a low-performing suburb or an area near a blue-chip suburb. So what happens when this blue-chip suburb gets too expensive for many to afford?
They generally relocate to surrounding areas that are more affordable or within their means, resulting in the so-called positive outer ripple effect.
The act of investing in low-cost areas to make a profit in the future is known as hotspotting.
5 Tips on finding a hotspot in real estate
Finding a hotspot is not easy. Here are five practical tips to help you land one.
1. Find property development opportunities
A property development hotspot is an area with significant development potential yet to be realized.
Unfortunately, many real estate agents and investors are only interested in existing homes. However, if you know how to leverage and upsell property development hotspots, they may help you gain new listings.
First, pick a few regions with high development potential. Most real estate brokers have access to statistics and numbers to assist them in their endeavours.
Then, when looking for hotspots, conduct the same research you would for real property.
2. Locate a reputable real estate agent
A good buyer’s agent is especially vital in a hotspot market. You want someone who will notify you of new listings as soon as they become available, if not before.
An intelligent agent will also understand how to make your offer stand out. Interview more than one agent, and don’t be afraid to request (and follow up on) recommendations from previous clients.
3. Consider supply and demand
A primary driver of price increase is the supply versus demand ratio of properties in a particular location.
Prices will undoubtedly rise if there is no more capacity to construct in the neighbourhood, but demand continues to increase.
Top ideas for locating high-demand and low-supply places include:
- Look for areas with growing rental yields: This shows that a neighbourhood is popular with renters. When renters become homeowners, they frequently buy in the same neighbourhood where they are renting.
- Examine the demographics of the people migrating into the region: For example, areas with a median age of 35 tend to gentrify quicker without being ageist since these demographics have higher incomes and can afford to buy or rent more costly residences.
- Look for regions where the population is growing: Although population alone is insufficient to drive up prices when paired with other indicators like increasing income and limited supply, this is a solid sign that property values in the region will rise.
4. Keep an eye out for the ripple effect
If you can’t afford to buy in a high-growth region (you could have just missed out this time), you might still be able to buy in the area by looking at the adjacent suburbs.
This involves time; therefore, you must understand the local real estate market’s cycle stage to maximise your chances of riding the wave of growth.
Top ideas for locating regions before the expansion wave hits:
- Compare the median prices of neighbouring suburbs to determine property values.
- If there is more than a 5% difference, the suburb next door will likely be playing catch-up.
- Every quarter closely watches median price trends; once you’ve determined that the cycle has begun, seek houses within your price range as near to the growth as feasible.
- When investing in capital-city suburban markets, a fair rule of thumb is to buy within 10km of the CBD; growth will almost certainly ripple this far out over a cycle.
5. Look for neighbourhoods that are undergoing gentrification
These communities may have had a bad image, but homeowners are now coming in and transforming the suburban environment.
- Examine the inexpensive places in a region of interest.
- Examine how house values have changed over past years.
- Look at the demographics and whether prices have been consistently rising. A growing number of young inhabitants with good incomes is a sure sign that the neighbourhood will gentrify.
- Look for indications of new or refurbished homes popping up in the neighbourhood.
- Look for new cafés or shops in the area.
Three real estate hotspots in Australia
Our three top selections for the country’s upcoming residential hotspots are as follows.
1. Western Australia (WA)
In 2022, Perth will be a standout market among capital cities. However, it fell short of the national average in 2021.
Despite the growth of 15% for homes and 12% for units, this would generally be considered a successful year.
The following year will be more powerful. Property markets in Western Australia benefit from improved economic conditions, with the resources industry expanding and a growing list of major infrastructure projects in Perth.
2. Lake Macquarie and newcastle
Many individuals regard Newcastle and its neighbouring areas as a preferable lifestyle option with more reasonable house prices, especially with record low loan rates.
Newcastle combines regional advantages, such as proximity to renowned beaches and wineries, with a small city’s convenience and work prospects.
In the two years leading up to May 2022, the region’s median house and unit prices increased by 33% and 14%, respectively.
3. Shoalhaven and the Southern Highlands
If you’re looking for commutability, the Southern Highlands may be the ideal combination of fresh air and proximity to Sydney.
The highlands are an easy trip for individuals wishing to commute, with the area’s major centre, Bowral, being just an hour and a half from the Sydney CBD.
Unfortunately for existing home purchasers, many Sydney buyers already know this hidden gem.
The area was also among the top in terms of high-intent buyer demand growth, with a YOY rise of more than 125%.
Like our tips on finding hotspots in real estate?
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