Identifying the next HOT growth suburb

Kiss finance for investment finance


If investing in property, one of the key factors in giving yourself the best chance of an early rise in the value of your new asset is to endeavor to identify, and buy in areas likely to experience greater than average growth in your chosen area.

Obviously, to be ahead of the masses, and the mainstream news of a growth suburb, (by which the time the masses have removed the majority of initial potential growth), is very attractive but does require some homework, some leg-work (yes physically going to have a look IS part of your strategy), a healthy attitude to take on some calculated risk, and of course some key rules to follow to give you the edge.

Broadly speaking, market prices of houses, and subsequent growth in value is, as in any buy/sell situation, subject to the forces of supply in demand. So in essence, what you are trying to identify is factors that may change this balance in your favour.

We are not including the changes in infrastructure e.g. new train lines, extension of freeways etc, in our golden three, as these often change and once confirmed, the growth has often occurred in anticipation unless you are very fast out of the trap. However, on top of our three below, this is undoubtedly worth some consideration.

Your three key “rules of the game” are in no specific order as the degree of each is more likely to be the determining factor in growth rather than one single factor, and in many cases looking at all three may be prudent to trim down your short list into your hot list.

Rule 1 – Take advantage of the “Ripple effect”

The basic principle is that though identifying top growth areas currently, historically the next ones to move are the adjoining suburbs which play catch up.

Potential Actions:

Get hold of a suburb map and the latest information on median growth rates over the last 6 months and quarter and some way of coding (e.g. a coloured marker or creating a 1,2 3 grading system). Get busy with your marker!
Look at the adjoining suburbs and if there is more than a 5% difference then you could have identified a winner
Know which stage of the cycle you are in if it near the beginning of the cycle then the CBD and coastal properties are likely to be your main out-performers. Look 8-15km from either of these key areas for potential growth over the next 12 months

Rule 2 – Look for NEW “trending” suburbs

As traditionally, trendy suburbs become less affordable, then other areas with a historically less desirable reputation may quite quickly become the place to be

Potential actions:

Identify those areas which have had slow but obvious growth, that have new houses built, sub-divisions or major renovations to lift street appeal over the last 6 months.
Check out the demographics of those moving into the area and new facilities or business investment. Note if there is lowering of average age group moving into the area with evidence of increase in retail outlets, schools and cafes

Rule 3 – Evidence that this IS the place to be.

We made reference in the introduction to supply and demand dictating market price movement, so having some evidence that this is happening could be a vital clue in narrowing down that golden suburb further.

Potential actions:

Increasing rental yield above the area norm is a strong indicator a suburb is gaining popularity. This indicates not only that the suburb may be gaining popularity but traditionally may ultimately result in higher demand to buy as those who are renting turn into home-buyers. Additionally, high rent yielding suburbs are going to be attractive to property investors who want to reduce gearing that is perhaps the case with investing in other suburbs.
Evidence of rapidly increasing sub-division activity or zonal changes may increase the attractiveness again to investors and be an indication of demand to live in the area. Looking at changes in population may again be advantageous.

So, get busy! Remember homework and leg-work are what make the difference to your success, and armed with your three golden rules AND of course some indication of affordability (which is of course something that we would be happy to have a no obligation call) and YES! your next property decision could be the one to rapidly increase your net worth.

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