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In the dynamic world of real estate investment, staying ahead of the game is crucial for maximising returns.
With Australia’s property market witnessing both booms and corrections over the years, investors are always on the lookout for the next hotspot.
Understanding the factors that drive growth and anticipating emerging trends, investors can position themselves for success in untapped markets before the area reaches its full potential.
According to Angus Moore, PropTrack Senior Economist, “predicting local trends is tough. Even predicting macro trends is hard, but that’s not to say that there’s nothing you can do.”
And with rental reforms such as not being able to refuse a tenancy application because a perspective tenant owns a pet – a trend that exploded during the pandemic – it’s worth investors putting their renter’s hat on when looking at potential investment areas and thinking about what’s important to those looking for their next place.
From accommodating pets to working from home, renters’ needs should be top of mind when considering whether or not a property is a sound investment or not.
Peace of mind needn’t go out the window though, because with landlords insurance for as little as $1.50 a day with Terri Scheer, it’s a small price to pay for knowing no matter what type of investment you own, or the location it’s in, you’re covered against tenant-related risks including loss on rental income, and loss or damage by tenants to your building and contents.
Carolyn Parrella is Terri Scheer Insurance’s Head of Distribution and offers these insights to help property investors start their journey the right way.
“Landlord insurance can provide cover and peace of mind no matter where you choose to buy your investment property, from loss of rent if your tenant defaults on the rent and is evicted from the property, or if they break their lease and leave owing rent,” Parrella says.
“You may also be covered if your tenant damages your property and it’s untenantable while it’s being repaired.”
So with all this in mind, let’s look at where and what investors should be looking for.
What is a property hotspot?
Essentially, a property hotspot is a suburb or location within a real estate market that is experiencing or is expected to experience significant growth, which can provide long term capital growth and strong rental yield.
However, your strategy for your investment property will determine how ‘hot’ you will gauge that area.
Whether or not you’re opting for capital growth or a positively-geared investment or a combination of the two will determine how you see any potential property as this will be heavily determined by your individual situation.
Many factors go into determining a solid investment opportunity, with Melbourne’s Inner South proving strong thanks to an abundant of green space and trendy inner-city culture. Picture: realestate.com.au
“You can think about a hotspot as either an area where there’s a lot of potential for rental price growth – where there’s a lot of rental demand relative to the available supply, or for future value growth in the property to sell,” Moore says.
“Researching the area that you’re looking for, making sure that it fits with your criteria, and what you’re looking for in an investment, is the best way to find potential.”
“So, there’s no one golden ‘hotspot’ to look for really. It depends on your financial circumstances, your personal circumstances and what your risk appetite is,” he adds.
In the quest to uncover investment property hotspots, diligent research allows for a comprehensive understanding of market trends, economic indicators, infrastructure projects, and demographic shifts.
Factors that make a hotspot
1. Units versus houses
When deciding whether to invest in a unit or a house, it’s important to look at different property rental demand.
When it comes to the most in-demand rental areas nationally, it’s the Greater Brisbane area that’s currently seeing the highest level of demand per property – at least when it comes to units – claiming eight of Australia’s 10 most in-demand suburbs for units.
Greater Melbourne, on the other hand, is showing the greatest demand for houses – claiming five of the top 10 most sought-after suburbs for house rental.
“Units tend to have higher what we call ‘gross rental yields’, which is the rent relative to the price of the house. Simply because units tend to be more affordable to purchase but rent for a little bit more than the commensurate difference,” Moore says.
It’s important to consider various other financial factors – for units, there may be additional fees like strata fees, which makes it even more important to have landlords insurance in case of any liability claims.
“Landlord insurance might also protect you from loss if your tenant is injured on your property and you are liable for the injury – something that can be particularly relevant to landlords in a body corporate situation, where you may have legal liability cover in common areas, but not in your unit,” Parrella says.
“It’s also important for landlords to understand there are differences between apartment buildings and free-standing house that need to be considered” Parrella says. “I strongly recommend landlords compare policies to really understand what they are being covered for – all policies are not the same.”
But, it ultimately depends on what you value more: cash flow and yield, or capital growth as units are easier to rent out but houses have traditionally seen faster price growth.
2. Regional versus metro
While the most recent data shows that metro properties are tending to have higher demand for rent then their regional counterparts, the past few years have shown a meteoric rise of demand for regional areas.
The regional markets have witnessed heightened competition in rental properties during and following the pandemic, owing to their smaller scale and limited inventory compared to urban areas.
While larger cities boast more expansive markets, regional areas offer a narrower yet promising landscape for investors.
Regional South Australia, as well as metro Adelaide are coming up tops in investor hotspots. Picture: realestate.com.au
Moore acknowledges the work from home trend is one of the drivers of this current growth.
“We have seen prices in regional areas grow a lot more quickly than prices in city areas, and we’ve seen a lot of demand for properties in outer suburban areas,” he says.
“This is in part because they offer larger dwellings in an environment in which you’re working from home more frequently.”
3. The value of transport, schools, and amenities
Amenities play a crucial role in identifying a property hotspot as they contribute to the desirability and liveability of an area.
Access to quality schools, recreational facilities, healthcare services, shopping centres, and transportation hubs enhances the appeal of a location, attracting both residents and investors.
This means it’s critical to identify what projects are in the pipeline, or underway, that can boost a region’s future value.
Moore adds “Amenities are obviously crucial to a suburbs value, and we’ve seen that in recent years where people have placed a lot more value on living close to amenities like beaches and national parks.”
Walkability to local amenities is becoming a huge factor in people’s lifestyles, and something to consider when investing. Picture: realestate.com.au
When it comes to choosing which amenities are favourable, you’ll want to consider the type of home and the lifestyle of the tenants in that area.
So whether you’re a seasoned investor, or just getting into the property investment market, look out for these factors when deciding on where to invest.
No matter where you choose to purchase a property, consider investing in Landlord insurance to help mitigate any risk.
Insurance issued by AAI Limited ABN 48 005 297 807 AFS Licence No. 230859 trading as Terri Scheer. The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.
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