A word of caution about hotspotting: Patrick Bright

When it comes to hotspotting and the concept of finding a suburb that’s going to boom in value quickly, not every expert is on side.

“Hotspotting is a bit of a myth. Don't get caught up,” EPS Property Search’s Patrick Bright said to Property Observer.

“Generally when something is written up as a hotspot it's too late. Once the media has a hold of it, generally it's a bit late,” Bright said.

He warns that often when areas are written up for growth they can be just consistent and very clever PR from developers and those with vested interests in the areas. As a result, investors should undertake research into specifically who is pointing to an area as being a hotspot as well.

“I've seen areas in magazines and newspapers and suburbs and locations being talked up for weeks if not months and then all of a sudden there’s a new development for sale and that area has had very clever several weeks and months of brand building, if you like,” he said.

“All of a sudden there's a new development to buy into and a stampede of people buying into these areas and you have to wonder why.”

Referring to Property Observer’s recent analysis on the poor performance of top property investing magazines’ hotspotting where there were some clear misses and moderate growth, he warns that too many investors are hoping for this instant growth equation.

“I'm a conservative investor and I have a couple of rules. Number one is a preservation of my capital; number two is the return on it.

“Above average return or an area that supposedly will perform well above average that signals alarm bells,” Bright said.

“There is no such thing as return without risk. Logic and mathematical formula of time, ask anybody with half a clue about investing and they will accept that the higher return possible the higher the risk.”

He also said that a lot of investors are hoping for sudden growth full stop, and the one single deal that will make them wealthy.

“They look for one transaction they will get rich out of quickly rather than a dozen smaller ones that they will benefit from over time,” he warned.

Today’s hotspots may very well be next month’s ‘coldspots’ and for the true hotspots investors shoul be looking long-term, he said.

“What's the long-term infrastructure? Why is it suddenly a hotspot and what will make it worth holding in five or 10 years’ time? What I look for are locations that show good history,” he said.

He points to a number of criteria for his investment choices:

- Regentrification of older established areas;

- Inner to middle ring of capital cities where there are lots of jobs (but not the heart of the CBD);

- Good infrastructure, preferably an area that is earmarked for further infrastructure (but don’t bank on ‘planned’ infrastructure until they start turning the soil’);

- Landlocked area where supply cannot be easily increased either up or out into new estates or highrises. This may be areas with tighter controls or restrictions to development or areas bound by geography such as coastal areas;

- A rising population in the future (just because it is rising now doesn’t necessarily mean it will not plateau or decrease).

“If you hear the word ‘boom’, the next question is ‘How long with it last?’,” he said.

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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