When it comes to property investment, the term “hotspot” often conjures images of booming suburbs where prices are skyrocketing, and properties are being snapped up in record time.
And that’s a bit a problem.
By the time an area is labelled a “hotspot,” the opportunity for a great investment might have already passed…
The Difference
A hotspot in property terms refers to a suburb or region that has gained significant attention and demand. These areas are typically characterised by rapidly increasing property prices, quick sales, and a frenzy of buyer interest driven by media hype and fear of missing out.
However, while hotspots might seem like a safe bet, they often come with inflated prices and reduced potential for significant future gains. Essentially, you’re betting on a horse that has already won its race.
On the other hand, warmspots represent areas that are on the cusp of becoming the next big thing but haven’t yet gained widespread attention. These are often the suburbs that surround the hotspots—places where the demand is beginning to increase, the days on market are decreasing, and prices are starting to trend upward.
Investing in a warmspot allows you to benefit from the growth that is yet to come, often at a lower price point and with greater potential for long-term capital growth.
Spotting a warmspot requires a bit of market intelligence and a keen eye on emerging trends. Here are a few ideas to help you identify these areas, before they become the next Perth:
- Track Rental Yield Trends
Consistently high or rising rental yields in an area can signal increasing demand from tenants, which often precedes a rise in property values. By monitoring rental yield trends, especially in suburbs adjacent to current hotspots, you can identify warmspots where both investor interest and tenant demand are on the rise. This early indicator can help pinpoint areas likely to experience future capital growth.
- Consider Days on Market
The number of days a property spends on the market before selling is a key indicator of demand. A drop in the days on market in a particular suburb suggests increasing buyer interest. If a suburb’s days on market have reduced from over 100 days to less than 100, it’s time to start paying attention. When it drops to around 60 days, you might be looking at a prime warmspot.
- Monitor Infrastructure
Government and private infrastructure projects are a tell-tale sign of future growth. If large sums of money are being invested in a particular area—whether for new transport links, hospitals, or shopping centres—this can indicate that the area is set for significant development and demand. Warmspots often benefit from proximity to such projects, as the improvements drive more people to consider the area.
- Focus on Established Areas
Areas that are already developed, with existing infrastructure and amenities, are more likely to transition from cold to warm and eventually hot. These areas are also less risky because they have a proven track record of demand and growth.
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