The frustration with hot spots is that by the time you find out about it – it has peaked.  Shannon Davis gives us an insight about discovering a hot spot before it becomes hot.

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Kevin:  Let’s have a look now at the indicators that a suburb or an area is about to grow. I don’t want to talk about hot spotting, because we talk about it and people love to get there before it happens, but by the time we all get there, it has already happened and it’s over and it’s peaked.

But let’s wind the clock back a little bit, Shannon. What are some of the indicators that in six to twelve months’ time, or even two years’ time, some suburb could become gentrified?

Shannon:  I like to see the renovation count. I like to see people having confidence to put more money into that area and perhaps not move, but extend, improve, renovate. I think that’s a big thing. I think you also look at the type of cars. What I’m looking for is the demographics and disposable income. Maybe European cars, and putting that upwardly mobile spot. We like niche shops such as organic food and veg or butchers or farmer’s markets.

Kevin:  Trendy cafés?

Shannon:  Yes, another sign of disposable income, and we want that as a larger proportion. So, we look at weekly family incomes to the area. We do a lot of study on demographics. Australians tend to spend on housing up to 55. That’s the cap off on money that a household will spend. And then after 55, it starts to come down, so you get to downsizing and that effect going on.

So, young families moving into an area, perhaps buying deceased estates and turning those properties over and renovating, that’s a good sign as well because they’re still spending a great proportion of their family income into the housing. So, we’re looking for all those types of things.

It’s the owner-occupiers who drive the market. When you invest, try not to think like an investor. Most investors are going to be attracted to new property for the tax deductions and things like that. But we’re looking for the owner-occupiers because they buy emotionally and they improve their properties. They’re a little bit more house-proud, and that’s what’s good for the area.

Kevin:  Yes, those improvements do actually drive prices up, don’t they? It’s heart-warming to see you buy into an area, and then all of a sudden, not so much unit development – especially not unit development – but you see houses being improved, renovated, even splitters, a house being moved sideways and another one put on beside it.

Shannon:  You see some of those suburbs where they’re spending $700,000 to knock over a post-war house, get a 607 block sort of thing and get a contemporary build where they’re looking to spend, say, 2500 square meters on the build. That ends up being a $1.5 million property.

If you have good schools, green space, and a high street with cafés, you’re halfway there, and that’s a good sign of an area that’s gentrified or on the way to being.

Kevin:  Yes. Another indicator for me too – and you touched on this – is what’s happening in the area. But some of the really good café operators will look at the demographic of an area, look for a niche need.

Shannon:  I also think real estate agents play a big part. I’m not talking about the real estate agents who just want to sell you a house and get it over and done with; they’re transactional. I’m talking about the elite in our industry who actually want to push for the highest dollar, set records, and make a street precedent and things like that.

So, in those really high areas, you have some really good agents who are setting records all the time, and I don’t think it’s all to do with the area; I think it’s actually having the industry elite pushing up prices doing well for an area as well.

Kevin:  So, you could do a lot worse if you are looking at selling a property than to ask the property agent to demonstrate how well they negotiate and what are some of their sales? Because agents will always tell you about other agents’ sales, but ask them about their own sales as well, see how good a negotiator they are.

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