Getting passionate about property is easy but getting it right is trickier

Getting passionate about property is easy but getting it right is trickier
Jonathan ChancellorOctober 7, 2012

Potential hotspot suburbs are the holy grail for property investors, but that oughtn’t necessarily be the wisest course.

By the time the mass-selling magazine publications hit the newsagency, locations that have a red-hot reputation have most likely passed their invest-by date – or at least are getting close to over satuaration by those who have gotten in before the tipster following herd.

Picking and purchasing property gems before they have got theirshine is the wisest strategy,which Residex forecaster John Edwards says involves buying at the right price, in the right place and at the right time.

Investors shouldn’t totally ignore the magazine tipsters, but sensibly should be seeking out individual property that represents good buying value, whereever it’s located.

Finding the property that suits your portfolio aided by insights from mentors.

These magazine hotspot lists are all too often way too cursory – they ought to be read and filed in your burgeoning library of research data, as they will be a handy resource and reference book, a template for starting the research, but I wouldn’t use them as a call to action.

Much of the current hotspots buzz centres on mining towns.

And there’s no better example of the hotspotting herd getting it terribly wrong than Zeehan, the picturesque small west coast Tasmanian town with a population of around 850.

It had significant speculative investment from 2003 to 2008, largely driven by mainlanders seeking dwellings with good rental returns at the cheapest end of the national market.

The investor demand had been driven by a number of exposés of the town promoting it as a hotspot.

Things really took off after a 2006 segment on Channel 9’s A Current Affair highlighted the town as the cheapest for housing in Australia.

Prices that were around $10,000 in the early 2000s jumped to $80,000 after the ACA story and then went as high as $150,000, even $190,000 in one sale, at the time of the Avebury nickel mine opening.

They’re now back to $100,000, according to a recent Australian Housing and Urban Research Institute (AHURI) study by Professor Andrew Beer.

While the June 2008 opening of the mine assisted prices along, the mothballing of the mine just six months later in December 2008 – and the loss of almost 200 jobs – has since caused house prices to plummet dramatically.

In its wake there’s been a procession of residential investors defaulting on their mortgages and business closures all too common.

Currently, Zeehan’s housing market is described as depressed by Beer and unlikely to recover from this position until the Avebury mine reopens.

A quick search of recent sale around Zeehan didn't take long before Property Observer uncovered one cottage sold at $147,500 in 2007 that resold this year at $66,000. It had been a much speculated property selling for $20,000 in 2004, at $13,000 in 2002 and at $7,000 in 2002, according to RP Data. Nearby a vacant building block that fetched $33,000 in 2007 sold for $5,250 earlier this year.


And despite their apparent cheapness, any investor would need to think long and hard about the location even now. With poorly maintained residential stock, lack of services and funding for local infrastructure, along with the poor overall Tasmanian economy, it’s very much a case study of a town and state in decline.

Indeed Beer wrote in June 2012 that Zeehan was emblematic of the mining industry generating a whole new housing dynamic with great volatility.

And of course, the mere term “hotspots” implies volatility – investors getting in and out of a market in quick succession.

Nothing about property being for the long-haul strategy here.

Boom/bust markets ought to be treated with utmost caution – and are not necessary within the sustainable portfolio of savvy investors.

It is true that sometimes the greater the risk, the greater the reward, so for some it represents an engaging endeavour.

As an independent news analysis and advise website, Property Observer has the advantage of cherry-picking some of the good ideas of many experts with national profiles.

But do your homework and stick to what’s suitable for your situation.

Have your wits about you not only when it comes to the property and its location, but also its promotion.

Investors ought to bear in mind who is making the recommendation, what interest they may have in the hotspot and whether they will earn commission income from the sale of real estate in this area.

By all means go ahead, so long as you’re happy with the transparency of the transaction.

It is essential against this backdrop that investors arm themselves with sufficient research to make a considered investment.

The cursory overview provided by the magazines just isn't sufficient to make such important investment decisions.

Terry Ryder, from the independent www.hotspotting.com.au website, says all the information you could ever need is out there.

Anyone with internet access can find it, he says.

But the challenge is to know where to look and to have the time to appraise the market intelligence. Like Terry, I have been writing about property for more than 25 years, and I've learnt that getting passionate about property is easy. Getting it right is trickier.

The news, analysis, commentary and data that is available on Property Observer is all aimed at assisting that endeavour to a hopefully profitable outcome for you.

For more, dowload our free eBook Tools for Getting Through the Hotspotting Tipping Maze

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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