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How to identify a Property Investment hotspot

No matter what the economic conditions, it’s still possible to make a wise investment into the UK property market.

Property is always going to be in demand as the population grows and demographics change. Long-term investment into real estate has always been a proven winner.

Yet who doesn’t dream of being “ahead of the curve”, making investment returns above the average. In other words, following a strategy to identify and invest in a “property hotspot” before most other investors become aware of it. Seeking “first mover advantage” as it were.

What does the term “property investment hot spot” generally mean?

Investment hot spots are generally those districts/areas within a city (or even a city itself) where values are lagging average prices city wide, regionally or nationally.  Investment yields may be slightly higher than in other similar locations as, comparatively, prices are depressed.

For whatever reason, the city or area has not attracted the same level of attention as traditional blue-chip cities or locations. But, and this is where the interest to investors arises, there is potential for values to catch up, maybe even overtake, values of comparable properties in similar areas.

In some city areas, hot spots can often be identified as areas that are underperforming, possibly within close proximity to more popular suburbs. When one area becomes too expensive for incumbent people to afford, or they want to capitalise on the higher prices, often they’ll move to these neighbouring suburbs that are more affordable. This has a positive outward “ripple effect” on surrounding values.

Finding a hot spot may be easier said than done but, with the right knowledge and tools, finding such locations can be realistic and an achievable goal. You just need to know which primary factors drive change in a city or suburb. And then plan your investment strategy accordingly. Working with a reputable advisor who already knows the market potential is also important so as to ensure your investment is made objectively.

Some of the key factors which can help create a property investment hot spot include:

Infrastructural improvements

Probably the biggest game changer for cities or suburbs is improvements in infrastructure. New or upgraded roads, bridges and, maybe most likely to change things around, new or extended underground or surface light rail systems.

These projects will boost connectivity and civic amenities, open up new areas for residential and commercial development, enhance older properties and create more short- and long-term job opportunities.

Such types of projects are the growth drivers for the economic well-being of such localities and, accordingly, promote demand for real estate.

Most local authorities in UK will have a Comprehensive Development Plan for a city or a district and this available for public review, and this will offer clues to future investment hot spots.

Planning changes

Often associated with infrastructural improvements are general planning changes. These may be the rezoning of, for example, so-called “brownfield” sites. Such sites may have formerly been occupied by warehouses, factories or ships for unloading or docking areas. They now be vacant or redundant owing to changes in the city’s business environment or constraints put on the site usage due to government policy changes.

As cities change their nature (ie from industrial based to service oriented) and their industries evolve or relocate, such sites may now be more appropriate for residential or mixed residential/commercial use. The site is then rezoned and becomes a major redevelopment opportunity and, hence, investment hot spot. The famous Canary Wharf redevelopment in London being a great example.

Local or national government policy changes

Linked to planning changes may be the effects of local or national government policy. If a city is being promoted as, say, a university city, with, perhaps an additional university to be built, this can drive demand for real estate. From students, university staff and all of the supporting structures. The building of a new hospital or major conference centre can have a similar impact.

Similarly, if a local authority is wishing to promote a city or locality as a technology hub, the associated developments will help create investment hot spots in the residential property market.

Gentrification

The natural upgrading and improvement of, usually, inner city areas from being relatively run down can have a ripple effect on surrounding areas. Often this is called “gentrification”. This is where areas formerly suffering from urban blight have been resurrected owing to a combination of developers spotting opportunities or local authorities endeavouring to upgrade the community and infrastructure. Sometimes, there may be a partnership between the private and public sectors in order to force through change.

The gentrification of one area can either inspire the upgrading and renovation of surrounding areas. Savvy investors can see an opportunity in a new area similar which has already occurred in the gentrified area.

Growing population and changing demographics

Emerging hotspots are often localities which are still developing, and/or have relatively low residential populations. Up until about 20 years ago, even in some older city centres in UK, the number of permanent residents was relatively low. This was partly as past governments encouraged decentralisation of housing and businesses. However, things have been changing with many city centres being regenerated and now having large mixed (residential/commercial) redevelopment schemes.

Local migration and even national immigration can have an impact on which areas are in demand and can help create property investment hot spots.

More and more people moving into the locality is one of the key parameters to identify an emerging hotspot as this indicates investor’s confidence in the locality. The demographics of the people moving in is also important for the economic well-being of the area.

Take a balanced view

Investing in an emerging property investment is a goal of many property investors. By comparison the initial investment is low, even though in the cases of older property the costs of renovation have to be factored in. Even so, future expected returns are likely to high.

However, as with any property investment the secret is to mitigate risk and take a balanced view, just in case things don’t quite work out according to plan!

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