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What makes an area a ‘hotspot’?

A property hotspot emerges when demand significantly outpaces supply, creating a surge in buyer competition. Identifying a hotspot is easier than you might think. Here are some key indicators:

• Days on Market (DOM): Properties sell within 2–3 weeks, indicating high demand.

• Low inventory levels: All available listings are snapped up within a month.

• Rapid price growth: Annual price increases of 12–15% are common, with some hotspots even seeing 25–30%+ over 12 months.

• Limited new construction: A lack of new supply fuels further scarcity.

Hotspots often attract property investors seeking high returns. However, a red flag is when investor activity dominates the market. This can be observed by significant shifts in rental volumes, signaling an over-reliance on investor demand rather than organic growth fueled by local residents.

Investing in a Hotspot: The Pros and Cons

While investing in a hotspot can offer exciting opportunities, it’s essential to weigh the upsides and downsides carefully:

Upside

• Equity extraction potential: Price appreciation allows investors to extract equity within 2–3 years, facilitating faster portfolio growth.

Downsides

• Higher entry price: Hotspots don’t emerge overnight. By the time an area is labelled a hotspot, prices may have already risen by 40–50%, meaning you’re entering at a high point in the cycle.

• Overpaying risks: Investors often pay a premium, expecting quick returns, which can backfire if growth slows.

• Investor-driven volatility: Markets fueled by investor activity rather than local affordability are more prone to corrections.

• Short-term gains, long-term compromises: While the immediate growth outlook (12–24 months) may seem attractive, long-term returns are often compromised in hotspots that have already seen significant appreciation. Early warning signs include price growth occurring at a decreasing rate month-on-month, signaling that the market is losing momentum and affordability pressures are mounting.

Investing in a hotspot can challenge the fundamental investment principle: buy low, sell high.

What’s Your Take?

What’s your take on property hotspots? Have you invested in one, or are you considering it?

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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any individual objectives, financial situation or needs. Before acting on this information, Premier Buyers recommends that you consider whether it is appropriate for your circumstances and engage qualified professionals.