What are the key ingredients in finding a future hotspot? Terry Ryder

Can hotspotting be distilled to one word? It can, and the word is infrastructure.

 
But, first, it’s important to define what is meant by hotspotting. It’s the process of identifying the locations that will show superior capital growth in the future, taking a long-term view. It’s not, as some assume, finding areas that will show a short-term growth spurt.

 
Locations that deliver superior capital growth have catalysts. A catalyst is sometimes a major and dramatic event, but it doesn’t have to be.

 
Sometimes the catalyst for an area is a combination of desirable qualities, such as affordability and good transport links.

 
Our research at Hotspotting shows that affordable dwellings and commuter train links is a power combination in our major cities. This year we have completed research for Sydney, Melbourne, Perth and Brisbane. In all four cities, suburbs with train links to the CBD have (on average) better capital growth rates than those without.

 
The average difference is one percentage point. It doesn’t sound a lot, but over 10 years that can mean a differential of $100,000-plus in capital growth.

 
In Sydney, nine of the top 12 suburbs for long-term capital growth have commuter train links. In Brisbane, it’s 10 of the top 12. There are similar results for Melbourne and Perth. These results indicate that a train service is not the only factor to consider, but should be high on the list.

 
But the standout feature is the combination of affordability and train links. The top performers in most of our big cities are cheaper areas with commuter links to the CBD. That includes Sydney, despite constant media static about the “better” suburbs being the best places to invest, not only in Sydney but in Australia (so they claim).

 
The reality, as shown by research figures from multiple sources, is that Sydney’s millionaire suburbs are among the worst performers on long-term capital growth anywhere in Australia.

 
This puts transport infrastructure high on the Hotspotting list of features to seek. New transport infrastructure – motorways, rail links, bridges, tunnels – is one of greatest wealth creators in residential real estate.

 
Projects of this kind generate massive economic activity while under construction and can revolutionise the appeal of a location by making it more accessible.

 
Other forms of infrastructure have an impact, too. Medical and education infrastructure is another of real estate’s power combinations.

 
In most of our capital cities, and some of our larger regional cities also, hospitals and universities tend to be clustered in the same area. The Murdoch precinct in Perth, the Woolloongabba area of Brisbane and the Carlton precinct in Melbourne are examples.

 
A major education-medical precinct generates big real estate demand, particularly for rental accommodation. If those facilities are expanding, it can supercharge the location’s property market.

 
A location that stands out is the Sunshine precinct in Melbourne’s west. It has two university campuses and one of the city’s major hospitals.

 
A new private hospital will be built beside the existing Sunshine Hospital. And $880 million is being spent converting Sunshine railway station into a major transport interchange facility, as part of the $5 billion Regional Rail Link project.

 
The Sunshine infrastructure hub is surrounded by suburbs with median house prices in the $300,000s and units in the mid-$200,000s. It’s also identified in the state government’s new metropolitan planning strategy as the key growth centre in Melbourne’s west.

 
It’s this combination of growth-generating factors that investors should be seeking.

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Terry Ryder is the founder of hotspotting.com.au and you can contact him at ryder@hotspotting.com.au or twitter.com/hotspotting.