Capital Growth: How to Predict the Next Property “Hot Spot”

One of the more essential elements when it comes to property investing is location. It is often said that the right location is one of the foremost issues when choosing where to buy.

Capital growth is the ideal result for any property investor; it provides increased equity for future investments or a simple profit on your investment. Monique Wakelin from Wakelin Property Advisory illustrates that capital growth can build substantial net equity quickly and allow investors to build up profit. "While it makes sense to aim for a reasonable balance between growth and income to allow you to meet your loan repayments, insurances and other holding costs, your bias should always be in favour of growth because this is the most direct route to financial independence." Ms. Wakelin explained. As many professional in the property market explain, smart investing means recognizing current and future ‘hot spots’ and knowing where to invest. Property cycles are rotating across all suburbs, with many in different stages. Capital gains are not generally a quick occurrence but build momentum over time through these cycles. There are several approaches when choosing an investment property with property professionals naming numerous elements that must be considered if one is aiming to profit off capital growth. Scott McGeever, director of Property Searchers, says he recommends investors own a property for more than 10 years in order to maximise their capital gain. "We advise all our clients you really need to be holding a property for a minimum of five years," he says. While length of ownership is important, so is choosing the right area. Capital growth potential should be researched to find out the key elements of the suburb the investor wishes to buy in, thereby indicating its chances for capital growth. Bernard Salt, KPMG partner and demographer, says that there are two key demographic factors currently affecting capital growth: infrastructure and job growth. "Places that have recently been subjected to infrastructure changes will change the value of a suburb. Although, there are always two phases to price growth associated with infrastructure changes. There is an initial boost when construction begins, and then another boost when the project is completed.” Mr. Salt explained. "Once it's actually completed and people can actually see and feel it, which is when the mass market makes its move. And that's when I think the most significant gains are made. Job growth is less definitive although there is a formula that can be applied: job growth begets population growth which begets property value growth." The cycle for job growth relating to population growth is predicting at two years with another year for property growth. Salt explained job increases attract a growth in population and competition for properties, which in turn, builds property values. John Edwards, chief executive of Residex and property analyst, says that buying property depends on when you enter the property cycle. "At this point in time, what you should be doing is looking for those areas that have reached the bottom of their correction cycle" he says. Whereas fellow property analyst Michael Matusik, of Matusik Property Insights, says that there are key factors that influence strong price growth in any particular suburb and will always predict if capital growth is approaching. He says it is all a matter of looking at price growth, the average sale and rental prices, population growth, and employment rates. Mr. Matusik suggests a simple equation for calculating the potential of an area. “Calculate the distance from GPO or major regional business centre, proximity to education, health and retail facilities, access to public transport, especially rail and if it is within five minutes drive of major open space.”