The term "hotspot" is bandied around with joyous abandon and has little value to investors

The term
The term "hotspot" is bandied around with joyous abandon and has little value to investors

The term "hotspot" was around long before I established my Hotspotting website eight years ago.

But today the word is bandied about with joyous abandon by way too many people, with fairly liberal definitions of what it means. 

For the record, I define a hotspot as a location which, for identifiable reasons such as infrastructure spending, will out-perform mainstream markets on price growth in the medium to long-term - and where it is currently a good time to buy. They are not places that will show flash-in-the-pan growth, with short-term spikes in the price graph, but locations with the fundamentals to deliver good growth over time.

It's important for consumer to understand that "hotspot" is used carelessly by press release writers and some media organisations which publish their work. Often, it is used to describe areas that have had strong medium price growth in the past 12 months past. By contrast, my purpose is to identify the strong locations of the future, which is of far greater value to property investors.

A current example is the reporting of a research document published by the Housing Industry Association. This report pinpoints areas which have, in the recent past, experienced high levels of residential building and, as a result, new population growth.

In most cases, they are outer suburbs where new housing estates are being established.

This has been widely reported as a document identifying "real estate growth hotspots", which is both misleading and dangerous for investors who believe the locations highlighted are great places to buy.

Many of the top-ranked locations in this report are demonstrably poor places to invest.

Three of the top places in this report are in Canberra. They are suburbs with new housing estates, which is why they show up under the HIA's criteria of locations with high levels of new building and population growth.

But hotspots in terms of their potential for capital growth? Definitely not.

Right now, nowhere in Canberra is a hotspot under our definition. In stark contrast to Sydney, and one or two other cities, the Canberra market is stalled, with many statistics showing prices and rentals either stagnating or going backwards.

The federal government's spending cuts - which undermine Canberra's status as a place of high incomes and low unemployment - are hurting. There is more pain to come in this market.

It's important to realise also that the building approval and population data on which this report is based, was out dated even before the report was published. It focuses on the 2012-13 financial year, which is of limited interest or value now that we are into the 2014-15 financial year.

The report has interest, in terms of identifying the locations where new dwellings are being built, but these are not, in most cases, places that will deliver out-performance in price growth.

Accordingly, they are not the "hot real estate markets" described in many media outlets.

You can contact Terry via email or onTwitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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Terry Ryder Hotspots

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