Again on the news just the other week, I hear a segment on ‘property hotspots’, trying to give the everyday viewer some secret ‘intel’ on where they should put their hard-earned savings when seeking to start property investing.
And again, I cringed.
The so-called ‘property hotspots’ featured in this segment included Geelong, the central coast of NSW, and Logan in Queensland, and the property ‘expert’ on the panel cited these locations as hotspots for investors because there are high levels of new construction taking place. As we’ve mentioned in our previous blog on ‘hotspots’:
The Housing Industry Association (HIA) identifies ‘property hotspots’ as areas where at least $150 million worth of residential building was approved during the year, and if the population in that area grew by more than the national average of 1.4%.
But just because there are high levels of supply of new housing, does not necessarily mean there is demand to match that supply. If there is no demand in an area – you’re going to have a sparkly new investment property sitting empty.
Let’s take a look at the 2 of areas that were mentioned in the segment:
While Geelong is an area of steady population growth, and of interest to some investors, the projected industries for employment for the region don’t score well on the Equidel Property Analysis Matrix.
Geelong is projected to increase the employment market by over 12,000 jobs between May 2017 to May 2022. This may sound impressive however; some of the strongest industries predicted to push this growth include social services, public administration, and retail (JobOutlook). Therefore we do not see data here to support a strong increase in knowledge-based employment within the Geelong area. In fact, it is predicted that within this 5-year timeframe, Geelong will have less than 200 new jobs in the professional, science, and technology services industries.
Previously we have seen the Logan Council promoted as a property hotspot. Looking into the data a little deeper leads us to proceed with caution, if one was to proceed at all.
While we have seen a decline in unemployment rates in Logan from 8.9% in 2016 to 6.64% by the end of 2018, this unemployment rate is still higher than the national Australian unemployment rate of 5.2% during the same period (id.com.au – Sept 2018). This could lead us to question whether this an area consisting of a lower social economic demographic.
Certainly employment levels can assist us with working this out, property market data can also do the same. We find that metropolitan areas (not city-based, high density living) of lower socioeconomic standards also tend to equate to property markets with higher percentages of renters versus owner-occupiers. Looking at a few suburbs in the Logan Council area:
- Boronia Heights (35.28%)
- Beenleigh (45.3%)
- Brown Plains (41.32%)
- Logan (47.78%)
- Loganlea (49.87%)
These suburbs all have extremely high levels of renters when compared to the overall Australian market which is less than 30% (ABS).
But the question is: Could Logan see an increase in the socioeconomic demographic over the next 5 years? Again, looking at forecast employment growth we can see that the industries of future growth are led by construction, health care and social assistance, followed by transport, posting and warehousing, and public administration. Similar to Geelong, Logan has very little professional, scientific and technical roles predicted (less than 400) over the next 5 years.
Although construction rates may be at an all-time high for particular areas around Australia, that doesn’t necessarily mean that the demand for housing is there quite yet.
Perhaps the new jobs aren’t hiring yet so there’s no need for people to move into the area?
And even when the employment does commence, what if there is a glut of rental housing available on the market?
This wider array of rental opportunities is great for the tenants as they can pick and choose between houses (meaning your rental property could be competing against the one nextdoor on the basis of wardrobe configuration or carpet colour!), but this over-supply also drives rental prices down as landlords/property managers are forced to drop their weekly rental prices to try and secure tenants.
Look at Loganlea (mentioned above) located within the Logan council as an example. The current rental vacancy rate is 3.16%, which is quite high compared to the national average of 2%, as of November 2018 (SQM Research).
Need Help with Property Investing?
As we’ve seen in these two examples above, just because there is a large amount of new construction happening in a particular area, doesn’t necessarily mean that this is a good place for property investors to invest.
If you’re thinking of investing in a particular area, suburb or city around Australia, please reach out to me on Michael@equidel.com.au. While I can help manage a property investment process from start to finish for some people, I also offer a Research & Analysis service where I can measure up a suburb using the Equidel Property Analysis Matrix to help determine whether this is going to be a safe investment for you and your future.
If you’re going to ‘Invest Property, Invest Properly’.