The Hotspot Basic Formula

Posted on 9/02/2015  
The Hotspot Basic Formula

I talk a lot about infrastructure in connection with areas we rate as future hotspots. I often refer to infrastructure as the ultimate driver of values in residential property.

Over many years of researching outperforming areas, the Hotspotting team has found that the common denominators of most good growth areas are affordable real estate, good infrastructure (with a bonus of spending on new infrastructure) and proximity to major jobs nodes.

Many hotspots fit this basic formula: affordability+infrastructure+jobs = price growth.  Click here to learn about our Supercharged Infrastructure Hotspots.

Nothing in real estate is ever quite that simple, but that basic recipe is a pretty good starting point for property investors.

The term “infrastructure” covers all manner of things, but the key elements are transport infrastructure and education-medical infrastructure.

The core impacts of these types of infrastructure is that they create tremendous economic activity and jobs (leading to real estate demand) while under construction and they improve the amenity and appeal of locations once completed.

Transport infrastructure covers roads, tunnels, bridges and rail links which improve the accessibility of areas. Nothing revolutionises the appeal of a location like the creation of new train links.

Last week Channel 7’s Today Tonight interviewed me about my high rating of the suburb of Forrestfield in Perth. There were two key factors. Apart from the inherently good qualities about this suburb (location, amenities, etc), it stood out in the short-term because of recent rises in sales volumes, leading inevitably to price growth. But, taking a longer-term view, the central factor was the State Government decision to create a new rail line linking central Perth to Forrestfield via the airport.

In some ways, education-medical infrastructure is even more influential. I link hospitals and universities together because often they are clustered in the same location in our major cities.

One of the characteristics of this type of infrastructure is that it creates employment while under construction but even more jobs once completed. Any suburb or precinct with a cluster of major medical and education facilities in its midst has a extraordinary source of accommodation demand. So much activity, including real estate demand, is generated around these types of facilities.

Infrastructure is the chief reason we rate the Sunshine precinct in Melbourne’s west so highly. The area already has a major hospital and two university campuses, but new spending will take this precinct to a new level. Another hospital is planned and an $800 million transport hub is being built as part of the $5 billion Regional Rail Link.

Events like this are game changers for property markets.

Big ticket infrastructure is influential in its own right, but one of the bonus benefits is the new activity it generates. If a major new hospital is built, other development will sprout around it.

Queensland’s Sunshine Coast is a transition economy, one that is evolving from a weak economy reliant on unreliable tourism to one with other strong factors. The game changer there is the $2 billion University Hospital. It’s a significant event by itself but it’s causing all manner of new ventures to spring up in its shadow.

There’s the Oceanside Kawana Health Hub, the $60 million Health and Social Wellbeing Learning Precinct and the $40  million IRT Woodlands retirement community.

These projects are all consequences of the creation of that massive new hospital. A whole new industry is being created and is helping to make the Sunshine Coast one of the most compelling regional economies in Australia.

Investment in infrastructure and property developments in the Sunshine Coast Region totals around $15 billion. No other regional city in Australia comes close to that level of investment (other than Gladstone, where those three huge gas facilities are under construction).

 

Terry Ryder is the founder of hotspotting.com.au

ryder@hotspotting.com.au

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