Property Investment Hacks: 8 Ways to Spot an Up-and-Coming Area
Guest post by The Pervaiz Naviede Family Trust
Investing in a house or flat in an up-and-coming area is a great strategy if you are looking to hedge greater capital growth potential ahead of the natural house price movements. Depending on how long it takes for the new location to take off, there could be significant inbuilt equity accumulated in your investment property. This could be accessed by remortgaging, selling or just leaving to provide a buffer in case of a future market downturn. Assuming you are renting the property out, your tenants will also have enjoyed the benefits of living in a new hotspot, such as great amenities and convenient public transport.
We have compiled a list of the eight most efficient property investment hacks to spot a property investment area with capital growth potential. If the community you’re considering investing in presents even a few of these signs, you can expect to see property prices grow steadily and this could also act as an upwards pull on rental values too.
Public transport expansion plans
A study carried out by Dr Gabriel M. Ahlfeldt from The London School Of Economics And Political Science found that property price rises can be accurately predicted ahead of transport improvements. The model Dr Ahlfeldt developed shows that a one percent enhancement in an area’s accessibility to employment opportunities results in an increase in property price of between 0.25 and 0.3 percent.
Research the local public transport company’s latest development plans. It’s likely new train services will be implemented or a new line will be constructed in the next five years. Investigate where new stops will be located to gain an insight into which particular areas will eventually become more sought after. It’s best to invest in a property that is as close as possible to these new amenities, as this will tend to gain more value in the long term.
Latest stats on crime
According to a study by Dr Stephen Gibbons published in the Economic Journal, crime levels are strictly related to property value. Dr Gibbons’ research reveals that a decrease of one-tenth in the local density of criminal damage generates a 1 percent increase in price in Inner London.
Areas that used to be cursed by a high crime rate are capable of considerable regeneration over time. It’s what happened to Notting Hill, in London - a district that 40 years ago was considered very dangerous is now home to an exclusive upper-class demographic. Here terraced houses now sell for an average price of £3,986,491, while semi-detached houses trade at about £10,395,556. Property values have continued to grow steadily in this area even in recent years.
West Gorton, a Manchester district, has seen a similar evolution. Thanks to a number of regeneration schemes, mean house prices in the area have gone from £22,494 to £133,750 - a staggering 494 per cent increase.
Look for an area with falling crime rates and planned regeneration projects - an improving quality of life can be an indicator of an up-and-coming area in the making.
Estate agents move with the market. Investigate whether there are new agency branches (or plans to open them) in the areas you are considering. Estate agents will have carried out extensive research, including market trends, public transport plans, jobs availability and regeneration plans before making the decision. Why not take advantage of their expert research?
It’s also a good idea to have a look at what hides beyond the areas estate agents cover - you might find a hidden gem.
A research paper by Dr Stephen Gibbons and Dr Stephen Machin published in the Oxford Review of Economic Policy found that local amenities and school quality can dramatically affect property value in urban areas.
Every up-and-coming area should have the basics covered, otherwise, it won’t attract potential buyers. Make sure to check the area offers all basic amenities, such as good schools, supermarkets, motorway access and bus stops. If it doesn’t, you run the risk of not providing for the future buyers of your property.
Youth population growth
Another sign of the next up-and-coming area is an increase of people in their 20s and 30s moving to the neighbourhood. This can prove to be rather difficult to research, so it’s worth visiting the area you’re interested in and speaking to the locals.
London suburb Brixton, for example, has seen a thirty percent increase in property prices between 2008 and 2013 as young professionals, such as doctors, accountants and bankers moved to the area.
According to the American Express High Streets Ahead study, properties near town centres with thriving independent traders have seen an average increase of £40,000 in price between 2003 and 2013. This growth is 17 per cent higher than the increase shown in equivalent areas with proportionally fewer independent traders.
The report claims houses close to flourishing high streets can exceed comparable properties in other areas by as much as £70,000 in the next seven years. Moreover, according to Dr Stephen Gibbons, having ten pubs or wine bars per square kilometre can uplift house prices by 2.8%. However, living too close to a pub can negatively affect property value, as pubs are often associated with increased levels of crime.
When visiting a neighbourhood, look out for gastropubs, artisan bakeries and patisseries, independent cafes and delis. These are all shops that attract a wealthier demographic. However, if big brands are already moving to the locality, then perhaps the area has already reached its full potential.
The presence of farmers’ markets is also a good indication of an up-and-coming neighbourhood.
Some areas become desirable by association, as demand for property in a good neighbourhood rises together with prices, whilst offer decreases. Research the areas near a popular neighbourhood to see if they present any of the other signs mentioned in this article. If they do, there is a good chance they have potential.
This is the case in Peckham, a once downmarket London district which has rapidly become a fashionable area over the past three years, thanks to the growth and regeneration of neighbouring suburbs Herne Hill and Camberwell. Land Registry figures show that residential property prices in Peckham are currently rising by 17 annually.
This article was written by The Pervaiz Naviede Family Trust, a trust with extensive experience in property development in and around Manchester.
The Property Voice Insight from Richard Brown
Some excellent tips in here in how to keep an eye out for up-and-coming property investment areas.
I often quote my own 'STAR criteria', which stands for Schools (Incl. Unis), Transport, Amenities (shops, cafes, etc.) and Revenue (basically jobs and local inward investment both public and private). Many of these are captured in this property investment hack too.
Another big driver is population growth and migration. This has seen certain areas, particularly in the cities, but occasionally in other locations too, explode with demand from house buyers and tenants alike.
One word of caution here, though...identifying potential areas where above market rates of capital growth is a speculative exercise and so, it is by no means a guarantee. That said, if you happened to have bought in places like London Docklands, Brighton, Aberdeen and of course Manchester in the past couple of decades, you will no doubt have been quite pleased with the accelerated capital appreciation you would have seen as a result of your property investment hack! Many of the characteristics listed in this feature would have been evident in these locations to give some clues to what might follow.
Capital appreciation is one of the Holy Grails for property investors and these sorts of features can at least help to underpin a decent capital growth outlook over the medium-term and sometimes even the short-term.