Consider this scenario …
It’s 2012. An investor wants to invest $600,000 in residential real estate. She’s considering two courses of action: buying in Sydney or buying in Darwin. The Darwin market is booming. The market in Sydney is not (and has been poor for many years).
What does the investor do? Her decision will impact on her financial future.
The 2012 choice: Mediocre Sydney
OR Booming Darwin
Fast forward five years …
If she took the Darwin option, the investor would have had solid growth, perhaps 6%, in 2013, but little or no growth in 2014 and price decline in 2015 and 2016. With the market past its peak, and the Northern Territory economy struggling, prospects for ongoing growth in the short-to-medium term were not as strong as other cities.
Sydney, on the other hand, had a strong year in 2013, with prices rising an average 14-15%, followed by even stronger growth in 2014. The strong price rises continued in 2015 and 2016. After 10 years of under-achievement, the Sydney market burst to life in 2013 and overtook Darwin and Perth to become the capital growth leader among the capital cities. This situation continued in 2014, 2015 and 2016. Over three years after 2012, Sydney values rose an average 50%.
The Hotspotting Process
The Sydney vs. Darwin example is a classic case of what we call Hotspotting, the process of identifying the real estate hotspots of the future.
Report author Terry Ryder, founder of hotspotting.com.au, has been researching and writing about real estate for the past 35 years. But in the 12 years he has been particularly studying hotspots and how they are created.
This has revealed that there are specific events or circumstances which create hotspots. We have grouped them into ten categories which we call Hotspot Core Categories. They’re all events or situations that can turn a location into an outperformer.
The Hotspotting Process is simple: it is to find locations that have multiple Core Categories in play. The best bets are the locations with three or four Core Categories working in their favour.
Before explaining how to find them, let us first identify the ten Core Categories. Some of them you’ll be very familiar with – others may be new to you.
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The next article in this series is Identifying Real Estate Hotspots #01: Transport Infrastructure
This is a joint publication of Snowden Parkes and Ryder Property Research.
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