9 Indicators of Property Hotspot

9 Indicators of Property Hotspot.

Identifying the location that offers the best and highest return on investment in land is a challenge to investors in landed property. It is often said that the right choice of location accounts for a 60% - 70% success rate of investment in land and property. So, the three most important things to watch in property investment are Location, Location and Location.

You may want to ask why location is so paramount and crucial to the success of a piece of real estate investment. The answer is probable and convincing, real estate development is about the creation of value and value is a function of location. That explains why the open market value of a 500 square metre piece of land at No. 4 Moshalisi Street in Orile Agege Lagos, Nigeria is said to be N35million and a similar size of land at No13, Layi Ajayi Bembe Street, Parkview Ikoyi, Lagos is valued at N500 million.

Location is crucial and is one major singular determinant of the success and or failure of a real estate investment all things being equal. This equally explains the trend we see in rental and sales values of real property when compared and ranked across different locations within a city, state and geographical area when such development is put to its highest and best use.

The phrase hotspot came into use and became popular with the advent of mobile telecommunication. From that point of view, it simply meant a physical location where people could access the internet using Wi-Fi via a wireless local area network (WLAN) with a router connected to an internet service provider.

Over time, the phrase has become popular in ranking investment locations, particularly in real estate investment vis-a-vis the ROI (Return on Investment) earned due to the choice of the subject location.

Dictionary.com defines a hotspot as a public place that offers wireless internet.

Merriam-Webster.com dictionary further broke it down to a place of more than usual interest, activity, or popularity.

Hotspot has been used to project negative and or positive tendencies in drawing attention to locations.

However, for this article, a hotspot is considered the choicest destination for property investment.

A hotspot is a common phrase often used in the property investment palace; globally to represent a physical location where property investment can thrive extraordinarily far and above any other area within the city, state or country, all things being equal.

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So, What is a Hot-Spot?

A hotspot in this context can best be described as an area that has not attracted the same level of attention as traditional blue-chip locations.

It is often regarded as an underperforming area, usually within proximity and directly linked to more popular suburbs or the city centre.

When an area becomes too expensive for people to afford, they usually move to these neighbouring suburbs that are more affordable to create a positive outward ripple effect. *

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How Do You Find One?

To a natural investor (passive investor), moving with the bandwagon and following the general trend is a way to go, these are categorised as fair-weather investors. It is a costly approach.

The risk here is likened to tailing a local cabman to avoid peak hour traffic jams with the self-assurance that local cabs are conversant with alternative routes around town unknown to you that the cabman is making his way home until he arrives at his destination.

Every investment decision ought to be guided by a thought-through process backed by facts and empirical data carefully analysed to give a specific direction.

Knowledge of the property market is crucial in finding and identifying the hotspot for specific property investment. As I wrote in my book 'Your Turn To Profit From Property Investing', you need the guidance of a professional investor, a specialist who has the know-how and inside track of the local property marketplace. You can acquire the skill by investing in your own knowledge of property investment through seminars, books, boot camps and getting the guidance of a mentor or specialist to help navigate the uncharted course.

The fact that a location is designated as a hotspot does not guarantee a high ROI for all classes of property investment. There is a need for profiling to determine what type or class of property is ideal for the location.

The nine indicators of a property hotspot provided below is a guide to finding and identifying a hotspot for property investment in each city, state and country: The correct application of the nine indicators will make your search for the hotspot an achievable goal.

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1.??Underperforming Locations: Look for the suburbs that are underperforming, and which are in or near the capital city. Such locations are like diamonds in the rough.

2.??Solid or Expanding Infrastructure: Look for an area with new or expanding infrastructure. Look out for suburbs marked for planned developments by the government as well as new infrastructure developments like a new industrial or commercial hub, new town etc.

3.??Signs of Major Brands Next Move: Look for signs of reputable local and international brands’ next move in the location. International brands, large retail chains, and manufacturing and industrial concerns have the capacity for substantial investment with the ability to drive value in the location.

4.??Access to Employment Opportunities: Look for access to employment in the area. Location with the potential for easy access to a diverse range of employment opportunities will attract reliable corporate and private tenants and offers better growth potential over the long term.

5.??Planned Major Infrastructure Development: Look for suburbs planned for major infrastructure upgrades or where heavy infrastructure like seaports, airports, rail links, and modern transportation networks is planned or undergoing development.

6.??Underpriced Underperforming Properties: Look for a sign of underpriced, underperforming property, a large expanse of brownfields and virgin land with developmental potential.

7.??Focus on The Property: Focus on the property and not the hotspot. Your focus should be on the property and identifying the right type or class of property with the highest potential for growth and return. The key is to identify the potential for capital growth and rental returns.

8.??Government Policy: Look for government policy(ices) to incentivise local and global brands into the location. Government policies on tax holidays, tax waivers and free trades are great attractions to reputable conglomerates and foreign brands to site industries and commercial outlets in specific areas. Organisations create 1000s of jobs. The beneficiaries become potential tenants, buyers, and investors for the community and local economic benefits.

9.??Private Sector Driven: Look out for private sector participation in the new town, suburban development. This is crucial for the success of the development project. Private sector-driven suburban, new town or Free Trade Zone development projects have been largely successful, In other climes, particularly in Nigeria and some other developing nations a good number of such projects solely sponsored by the government have failed and or not delivered on time.

To recap, a property hotspot is not an area that everyone rushes into at the first instance; its potential is not visible and largely untapped. It does not wear a label of 'destination for investment'; hence risk averse won't touch it with a long pole. It is often first discovered by professional investors who maintained sealed lips until they have consolidated their grip.

The location grows gradually without the notice of passive investors and the public in general while professional investors consolidate their grip having moved in early to acquire large expanses of land and property cheap, usually at bottom prices. It starts to appreciate gradually as planned infrastructure development or urban renewal processes began to take shape.

The news of high ROI because of the activities of the early birds (professional investors) who began to offload usually brings a such location to the limelight as it begins to attract the movement of ‘all comers’ investors. The area previously overlooked in its initial state has demonstrated strong potential for a good return and is beginning to attract investment from all comers. It is often the activities of the passive investors and impulse buyers while funding the exit of professional investors (the early birds) who are cashing out and offloading their investment at an average of 300% or more ROI that create the bubble and attention of the general public to the location.

The suburb has now become the destination for investment, a hotspot for property investment with the capacity to continue to produce handsome ROI though at less margin to those of professional investors who were the early birds.

The trend goes on until a price correction at the end of the cycle is reached or a diminishing return is set-in. The location gradually lost its low entry and high return status as it assumes a new classification and status. The cycle in most cases ranges between 10 to 20 years depending on the strength of the local economy.

Knowledge of the marketplace is crucial for investors in property to make a success of investment in the property space, passive investors or impulse buyers are forever going to be the pedestal upon which professional investors thrive. The reason is simple, professional investors treat property investing as a business while passive investors treat it as a hobby.

To acquire the requisite skills and knowledge to trade and profit from property investing like a professional investor get a copy of my book ‘Your Turn To profit from Property Investing’ published in 2015.

The above article has laid the foundation for the next one. My next publication will highlight property hotspots in Nigeria.

To receive a FREE e-copy of the next publication Property Hotspots in Nigeria leave your details via the email below:

Thank you.

Tunde Akande B.Sc, M.Sc, CeMAP?

[email protected]

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Tunde Akande is the founder and Group Managing Director of Heritage Group, UK based international property investment and development company. He is an author, professional property investor, coach, mortgage consultant, and chartered Surveyor with extensive knowledge in the local and international property marketplace. He is the author of Your Turn to Profit From Property Investing (Action Wealth 2015)