How to spot high-growth suburbs before property values skyrocket

“Buy low, sell high” is the goal for any successful investment, but predicting the ups and downs of market cycles can be challenging to get right.

Property, in particular, is subject to a vast array of influencing factors, but industry experts believe learning to spot a few key indicators can significantly increase your chances of financial success.

If you time your entry into a hotspot suburb well, catching the market as it hits its upswing, you can see strong growth over a relatively short space of time. This allows you to amass equity very quickly, which can then be used to expand your portfolio.

In order to buy at the right time, however, you need to be able to recognise the signs of an area on the cusp of popularity. This requires a combination of a birds-eye view of the general property climate, as well as more detailed information on potential suburbs. If you look at national property trends at the moment, it’s clear that the market is slowing down, with average house price inflation at 5.2% as of August 2016.

Not all areas are being affected to such a great extent, however, and these are the spots investors are likely to be looking at in the near future. 

Here are a few indicators to look for: 

1. Gentrification

Keep an eye out for suburbs that may have had a poor reputation in the past, but are now attracting an increasing number of young residents with decent incomes. New retailers, cafés and restaurants opening up are good signs, as is an increase in renovation or new construction in the area. Together, these factors breathe new life into tired suburbs, and if the momentum is maintained, can turn them into trendy hotspots with excellent growth potential.

2. Large-scale infrastructure projects or developments

Large infrastructure and development projects create jobs, and jobs draw new residents to an area. If you see a big office park, lifestyle or shopping centre going up in a suburb, chances are the property values will soon improve. It’s best to wait until construction is underway, however, as projects don’t always get off the ground as promised.

3. Ripple effect

If you miss the boat and the suburb you’re interested in has already outgrown your budget, consider a purchase in a neighbouring suburb. We often see something of a ripple effect, with suburbs bordering a high-growth area experiencing growth of their own, thanks to the positive changes and increased popularity of the neighbourhood next door.

4. High demand, low supply

The ratio of demand to supply is a key driver of price growth, so Van der Merwe recommends looking for suburbs with little to no capacity for new construction, and increasing demand. Rising rental yields can be a good indicator of suburbs that are likely to see this balance changing in favour of investors, as they indicate popular rental areas, and renters typically buy in the same suburbs in which they rented.

5. Asking prices below replacement costs

In most cases, newly-built homes in developments cost between 10% and 30% more than second-hand properties in neighbouring suburbs. In these cases it can be a great idea to opt for the more affordable properties and wait for their prices to join those of the more expensive estates a few years down the line.

In conclusion

Once you’ve identified a potential high-growth area using the indicators above contact an estate agent who is active in the area to discuss more localised buyer trends. With the help of a good agent, you should be able to source a property that fits in with both micro and macro trends, giving your investment the best chance for growth on all fronts.