Consider this scenario...
It’s 2012. An investor wants to invest $600,000 in residential real estate.
She’s considering two courses of action: buying in Sydney or buying in Darwin.
The Darwin market is booming. The market in Sydney is not (and has been poor for many years).
What does the investor do? Her decision will impact on her financial future.
fast forward five years...
If she took the Darwin option, the investor would have had solid growth, perhaps 6%, in 2013, but little or no growth in 2014 and price decline from 2015 to 2019. With the market past its peak, and the Northern Territory economy struggling, prospects for ongoing growth in the short-to-medium term were not as strong as other cities.
Sydney, on the other hand, had a strong year in 2013, with prices rising an average 14-15%, followed by even stronger growth in 2014. The strong price rises continued in 2015 and 2016, before starting to taper off in 2018.
After 10 years of under-achievement, the Sydney market burst to life in 2013 and overtook Darwin and Perth to become the capital growth leader among the capital cities. This situation continued from 2014 to 2018. And, after a brief period of correction, resumed late in 2019 and early 2020.
The Sydney v Darwin example is a classic case of what we call Hotspotting, the process of identifying the real estate hotspots of the future.
Report author Terry Ryder, founder of hotspotting.com.au, has been researching and writing about real estate for the past 38 years. But in the past 14 years he has been particularly studying hotspots - the locations that out-perform the general market - and how they are created.
This has revealed that there are specific events or circumstances which create hotspots. We have grouped them into ten categories which we call Hotspot Core Categories. They’re all events or situations that can turn a location into an out- performer.
The Hotspotting Process is simple: it is to find locations that have multiple Core Categories in play. The best bets are the locations with three or four Core Categories working in their favour.
Before explaining how to find them, let us first identify the ten Core Categories. Some of them you’ll be very familiar with – others may be new to you.
Core Category #1: Transport Infrastructure.
This is especially true in Sydney, Melbourne and Brisbane, but it’s also happening in Adelaide, Canberra and Perth. It’s in the news almost every day. Sydney has big problems dealing with its traffic congestion and the problems of its public transport system. Melbourne has issues too.
Brisbane and South East Queensland constantly plays catch-up, trying to keep up with population growth. Completed in recent years in Brisbane are the Ipswich Motorway upgrade, duplication of the Gateway Bridge, the Clem Jones Tunnel, Airport Link, rail links to Springfield and to Redcliffe, and various busways. Other multi-billion-dollar projects are in planning, including the $5.4 billion Cross River Rail project.
Various State Governments have gone billions of dollars into debt, borrowing big to fund new infrastructure, of which the biggest expense by far is Transport Infrastructure. The Federal Government also directs big resources to transport infrastructure, including plans for a second airport in Sydney and an inland rail line linking the eastern states.
Why do we care? Because a new motorway, rail connection or bridge can revolutionise property markets. A suburb that was 90 minutes drive from the CBD can be brought 20 or 30 minutes closer by the opening of a new freeway – and suddenly have far greater appeal for home-buyers.
The Gateway Bridge and motorway gave suburbs on both sides of the Brisbane River much faster access, including to the Gold Coast and the Sunshine Coast. The opening of the eight-lane Pacific Motorway between Brisbane and Gold Coast had a huge impact on residential property in the north of the Gold Coast, because getting to the Brisbane CBD became faster – plus there was also a new fast rail connection.
The WestLink system in Sydney is important, because it connects three motorways. The EastLink motorway in Melbourne has also had a big impact. It has affected property values, both with industrial and residential property.
In late 2019 and early 2020 it was reported that property buyers were heavily targeting suburbs on the route of the new Sydney Metro Northwest rail link.
In recent years, there have been major new announcements of transport infrastructure projects,including new motorways and new or extended raillinks in all our major cities. Sydney and Melbourne are both spending multiple billions of dollars on their road and rail networks.
The extensions of the Kwinana Freeway south fromcentral Perth have been instrumental in generatingcapital gains for property in areas like Mandurah,which became one of the biggest growth areas inAustralia. The extension of rail links to those areasand the construction of the Mandurah Bypassenhanced the process.
The Geelong Ring Road brought major benefits toproperty owners south of Melbourne. The $5 billion Regional Rail Link, which opened in September 2015,has reduced commuting time to Melbourne from Geelong, Ballarat and Bendigo. Property marketsin these regional cities rose in 2017-18-19, withRegional Victoria recognised as one of the nation’s strongest property markets.
Hotspotting research shows that city suburbs with commuter train links generally have higher capital growth rates than those without train services.
For any investor thinking of capitalizing on the Transport Infrastructure influence, it’s important tobe aware of this factor: there are usually three waves of increases in property values. The first comes when government makes the initial announcement of plans for a new road. The second comes when they start construction. And the third happens at completion of the project, when people can see tangible evidence of the effects of the new infrastructure.
But be warned: Transport Infrastructure is a popular political football and governments often announce big projects as an election approaches and then are slow to follow through.
In addition, Transport Infrastructure can result in problems rather than benefits, especially for properties too close to the new facility.
So there can be risks if investors take a punt and buy property because of political talk of a new transport project.
But if you get it right, you can make lots of money.
Locations which have had price booms due to (or partly due to) new Transport Infrastructure:
• Ballarat, Victoria
• Badgerys Creek, New South Wales
• Geelong, Victoria
• Blacktown, New South Wales
• Frankston, Victoria
Contact Us to see the full and completed report.
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