Why chasing hotspots is not smart – Veronica Morgan

Why chasing hotspots is not smart – Veronica Morgan

Veronica Morgan should know all about ‘location’ when buying property.  Veronica is the co-host of the Lifestyle TV Show Location, Location, Location Australia.   In this interview Veronica sounds a note of caution about chasing hotspots.  There is a better way!

Transcript:

Kevin:  One of the most common questions I’m asked is about location. “What’s the best location? How do you find a good one?” Well, there’s no one better to ask than someone who hosted a show called Location, Location, Location Australia. I’m talking about Veronica Morgan. She joins me.

Good day, Veronica.

Veronica:  Hello, Kevin. How are you?

Kevin:  Wonderful. It’s great to be talking to you again. If anyone knows about location, it has to be you.

Veronica:  You’d think so, wouldn’t you?

Kevin:  You’d hope so. How do you go about choosing a good suburb?

Veronica:  Very good question, and it is the question that everybody seems to want to know the answer to. So, as is typical with any question that I answer, there’s no short answer. We first start by saying “Well, are you an investor or an owner-occupier?” Now, investors and owner-occupiers often make very different decisions about where they want to buy, but obviously, an investor isn’t as wedded to an area that is suiting their particular needs or their particular lifestyle requirements.

But the question that everyone wants to know is where’s the next hotspot?  And that is the big area of danger that I find. In fact, interestingly, lately I’ve been doing a lot of research into various data sources and various advisory services trying to help people predict what’s going to be the next hot spot, what’s going to be the next area or location to move within the next, say, 12 to 18 months, and all I can say is that I absolutely get very alarmed by the drive for this sort of information because I like to avoid risk.

Whenever I’m talking to somebody about choosing a good location, I say let’s think about the long game. Let’s really try to get out of this hotspot type of mentality, this idea that “I want immediate growth.” Let’s look for areas in which we’re going to have sustained, consistent growth.

Because the thing is that a flipper, for instance, they need to get their timing spot on and they also need to know those areas where there’s going to be a rapid rise in the short term, but most of us aren’t flippers.

Therefore, the first thing that I talk about is I want people to really understand that there is an enormous amount of risk in chasing short-term gains in property.

Kevin:  And like you, I’ve followed a lot of the people who do make these predictions, and it’s a bit like throwing a dart at a dartboard in some cases because they don’t always hit the bullseye, do they?

Veronica:  No, and who’s bearing the brunt of that? Who’s actually suffering from that? It’s the people who follow their advice, not them.

Kevin:  That’s right. What other things would you recommend?

Veronica:  Really, where you buy determines when you buy. Where I’m coming from there is that when you’re buying in areas that are subject to or sensitive to property cycles… And we also have to understand that the whole of Australia doesn’t follow one cycle. So, you have to understand the local dynamics for starters, but where you buy determines when you buy.

So, if you’re buying in a very cyclical market… Say Perth, for instance. The analysts are saying that Perth finally hit the bottom. Well, that’s the trough, one very long downward trend. Obviously, if you’re going to buy in an area that goes down and then it holds a bit and then it goes up again, when you buy is critical to actually making money as an investor.

Whereas if you buy in a blue-chip area, they don’t have cycles in quite the same way. Obviously, the safest – and as a result, the most expensive – blue-chip areas are those inner suburbs of Sydney and Melbourne, because their growth cycle over time – or the pattern, if you like – doesn’t have the same look to it of peaks and troughs. What it does is it tends to flatten off in slow periods, and then it’ll grow again and then it’ll flatten off.

So, understanding the actual underlying historical trends, getting into the data, and looking at the past and saying “Well, how much of that past is likely to replicate itself in the future?” And that comes down to what’s underpinning that market.

So, in a cyclical market, there are usually big things that drive it – like in Perth, for instance, where it’s mining – that might have very little to do with the actual individual houses, but it impacts on people’s earning potential, it impacts on population, and it impacts all those big things that really underpin a market.

Whereas in Sydney and Melbourne you have large populations, high incomes, high employment, and all those lifestyle markers that underpin a solid market.

Kevin:  In summary, Veronica, your top three tips for picking a good location.

Veronica:  Okay. I think the first pick is that if you’re looking at an affordable location purely because you can’t afford a less risky location, then you have to question whether you should be investing in property at all.

The second tip is when you’re looking at a blue-chip location, however, it’s unfortunately going to cost you money on a monthly basis. Yield is a function of risk, and unfortunately these solid areas with very good foundations underpinning their long-term growth aren’t going to deliver the yield that a lot of people want. But they have to understand that yield equals risk.

And thirdly, not every property in these low-risk suburbs are low-risk properties. It’s really important that you drill down, because the finer detail and the real success of an investment is understanding the local dynamics and buying the type of property that locals want in the right price bracket and all those sorts of things. So, you have to really tap into that local understanding.

Kevin:  Yes, and just those three points alone, Veronica, summarize beautifully why it’s so difficult to pick a suburb and say that it’s the next hotspot, because they just vary so much, even street by street and property by property.

Veronica:  They do, absolutely.

Kevin:  Great talking to you. Veronica Morgan has been my guest. Veronica, thank you so much. If you want to reach out to Veronica, her website is GoodDeeds.com.au.

Thanks, Veronica.

Veronica:  Thank you.

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Kevin Turner
kevin@realestatetalk.com.au
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