Australia's Top Faux Property Hotspots
Australians all love a property hotspot. You know, the next hot suburb or area that is about to explode in value and in the process set you financially in a matter of months. Every day we’re reading newspaper articles, talking to our friends at barbeques and listening to the ‘experts’ who are all quick to announce the next big growth hotspot and why they think it’s about to take off.
There are many good reasons for us to be attracted to the idea of getting some quick capital growth from a high-performing growth suburb. If our equity increases, it allows us to leapfrog into the next property, continuing to build our property portfolio faster. The truth of the matter is that we all want to take a shortcut and find that nugget of gold. It’s just human nature.
Unfortunately, the reality of the situation is that many of the hotspots that the media and property spruikers love to talk about are not that hot at all. In fact, they’re the complete opposite of a hotspot. In many cases, they are actually a total basket case and should be avoided at all cost. Let’s be very clear here. These are suburbs and areas where if you invest in them, you will simply lose money in the next few years. Despite the hype, these are locations that are sub-standard and must be avoided.
It’s also important to note that these are not areas that are off the beaten track. The suburbs we’re talking about are ones you’re probably reading about and seeing positive news stories on, every week. Perhaps you even heard about them at that seminar you attended last weekend. These are suburbs where there might very well be high demand at the moment and even people who want to buy into them right now.
To the untrained eye, these suburbs look like they could be a potential hotspot for all those reasons. The reality is that they all have one, or many, major flaws that will simply prevent them from achieving any form of capital growth in the foreseeable future and are compromised in a significant way. We feel that they are basically no go zones for investors.
At Ripehouse, we’re able to use technology to help shield our clients from both the 'experts' and the property spruikers who are making dangerous and largely baseless claims about where investors should be looking to buy. Our technology edge combined with our own research enables us to identify the suburbs that should be avoided at all cost.
Moreton Bay is all the rage at the moment. From the outside, it ticks the boxes and has all the things you would expect would lead to capital growth. There’s been a train line extension suggesting that the Government is looking to develop the area. The council is bullish on the growth of the area, there’s a business park, a new university, Ikea and Westfield as well as strong population growth with forecasts suggesting there will be more to come for the next decade.
But there’s a big problem - supply. There are many many new houses currently being built, with more on the way.
If you look at the Brisbane suburbs and check the new builds per annum, it would be no surprise to see the inner suburbs growing sharply given the high rate of inner-city development. However, there is one area in Moreton (postcode 4505), where the number of new houses has increased by 12% over the past 12 months. What this means is for every eight new dwellings that currently exist, one more is being created.
That’s a very scary proposition for potential investors as it is clearly outstripping the impact of any positive population growth. What we need to understand is that a property is never going to grow in value if people can simply go out in one years time and buy the exact same property at the exact same price.
When hundreds, if not thousands, of new allotments, are minted out of dust virtually overnight, it’s foolish to think that a one-year-old or even a three-year-old house can go up in value. This has happened time and time again and Moreton Bay is a perfect example of how excess supply kills a housing market.
We have also calculated that almost 20,000 new lots will be going into the South Moreton area over the next few years. Which will, in fact, be even closer to the Brisbane CBD. So people will actually be driving past that new development area in South Moreton on their way to potentially purchase an investment property even further away from the CBD. Clearly, there will be no growth in Moreton Bay any time soon.
While we’ve had tremendous success buying in Geelong between 2016 and 2017, it is certainly a no go location for us now. In many cases, our client purchases over this period have experienced more than 15% capital growth per annum - but we were buying in very select pockets where there were natural constraints on supply.
This was due to a unique set of circumstances where there was a dramatic housing shortage, but the government threw the keys to locale developers and property owners to fill the shortfall. They were very bullish in their approvals for sub-division or capital improvements. This lead to a feeding frenzy of locals, investors, developers, and homeowners wanting to move into this uplifting area.
This frenzy took two years to neutralise. We strategically purchased a large number of properties early in this phase. Over this time we saw excellent capital growth, and now these suburbs are still keeping pace with the overall Geelong market - but this is a market which has already delivered very strong growth over the last 3 years, a risky time to be considering a purchase in this area.
Although this city has a lot going for it, as a growth cycle matures - the risk of it ending abruptly increases. We are already seeing some developers choosing to slow down their plans in the area due to margin squeeze - another big red flag.
Despite this, we are still seeing a number of Buyers Agents purchasing properties for their clients as investments which is concerning, to say the least.
So while we all love the idea of fast-tracking our wealth creation journey, and purchasing a property in a high growth area is the best way to achieve this, when jumping on the bandwagon it's crucial that do your research first.
Stay tuned - more on Geelong next week in our detailed report where we show you the exact areas to avoid in Australia's Top 5 Faux Hotspots + How to spot a true growth area.