Past Doesn't Matter

One of the factors we’re constantly searching for, among the thousands of markets across Australia, is CHANGE.  We’re on the look-out, every day, for locations where the performance of the property market is set to go to another level because of major changes in the local economy. We sometimes surprise people by recommending areas that have a POOR TRACK RECORD on capital growth. But, essentially, we don’t care about the PAST when we’re choosing locations to recommend. We’re only interested in the FUTURE. When we find a location where a major program of infrastructure development is under way, or there’s a big change in the local economy - and we feel confident that this will generate elevated demand for real estate in the area - WE DON’T CARE if that location has delivered minimal growth in the past 10 years. Our process, fundamentally, is about the FUTURE. Let me illustrate the point with some case studies. In the July 2020 edition of our most popular report – the National Top 10 Best Buys report – we listed the Sunshine Coast as our No.1 pick. With the benefit of hindsight, it may appear to be a case of the bleeding obvious. But, at that time, it was quite different. NO ONE wanted to buy Sunshine Coast real estate back then because its track record on capital growth was terrible.  At that time, the long-term capital growth averages of most suburbs ranged from 1% per year to 3% per year. A 10-year growth average of 3% per year means it would take 24 years for property values to double  - and property buyers want much better than that. In the iconic suburb of Twin Waters, the median house price had dropped 13% in the previous 12 months and the long-term growth average was just 2% a year. The vacancy rate for Mooloolaba at that time was above 3%, the precinct around Kawana and Minyama was 3.5% and at Noosa it was above 6%. Why would anyone want to buy there in 2020? You would have to be mad, right? But anyone who DID follow our recommendation, and bought on the Sunshine Coast in 2020, would have experienced, in the next three years, some of the most spectacular capital growth anywhere in Australia. The median house price at Coolum Beach rose from $700,000 in mid-2020 to $1.35 million today – and median unit price rose from $450,000 to $800,000. The median house price at Sunshine Beach rose from around $1.5 million at the start of 2020 to $3.5 million by the start of 2022. It more than doubled in two years! And the median unit price rose from $800,000 in 2020 to $1.5 million today. At Twin Waters, which had such a poor record in 2020, the median house price rose from $800,000 to $1.5 million by mid-2022. There are many, similar, examples throughout the Sunshine Coast market. So, WHY did we recommend a location with such as bad track record in 2020? Because we didn’t care about the past, we were focussed on the future.  Infrastructure projects totalling over $20 BILLION were under way or in planning. It was a no-brainer that this would transform the Sunshine Coast market – and it did. Here’s another example. We were recommending locations in Perth in editions of the Best Buys report in 2021 – three years ago.  The April 2021 edition of the report featured the City of Rockingham, an affordable bayside precinct in the south of Greater Perth. At that time, most suburbs of Rockingham had long-term capital growth rates of MINUS 1% or 2% per year. In other words, prices there were LOWER in 2021 than they were 10 years earlier! Why on earth would anyone recommend a location where property owners had lost money for the previous decade? Because we could see THE CHANGE coming – in that location and in Perth generally. In the suburb of Golden Bay, the long-term capital growth average in early 2021 was -2% per year. The median house price, then, was $330,000. Today it’s $515,000 – it’s risen almost 60% in three years. At Port Kennedy, it’s gone from $350,000 to $550,000. There’s been a similar outcome for every suburb in the City of Rockingham in the past three years. But at the time we recommended it, these locations had capital growth records that were among the WORST in the nation. Now, here’s the key thing:- Most real estate consumers would rather buy in an area where prices have grown 50% or 60% in the past two or three years, than buy in an area where prices have shown little growth recently. There are far more people wanting to buy in Perth NOW, at the peak of the boom, than there were in 2021 before the boom started. This makes little sense to the team at Hotspotting. We would rather buy in a location with strong future growth credentials when that market is DOWN, than when it’s at its peak. But many investors, it seems, need the APPARENT security provided by recent high growth. That attitude, we believe, shows a lack of understanding of real estate dynamics and fundamentals. Here’s the key learning from this:  DO NOT let a poor track record prevent you from buying in an area that has future growth potential. The past is often irrelevant. What matters is the FUTURE.