You certainly won’t have to look too far to find a property hotspot whether you are in the UK, Australia, America or any other part of the world. Property hotspots have become a common element of the worldwide property market but have you ever thought about why they emerge? Is it simply a case of investors following the crowd or something to latch on to in quiet times?
When do property hotspots emerge?
History shows us that property hotspots will emerge in good times and bad times with people looking for investment ideas and investment opportunities. Sometimes these property hotspots will appear and disappear very quickly while others can create something of a long-term trend and a change in the local real estate market. So, from this perspective there is really no rhyme nor reason to the emergence of property hotspots.
Following the crowd?
There is a debate as to whether property hotspots around the world are seeded by creative investors or simply people following the crowd. If you look back at some of the more successful property hotspots you will see that very often one or a small number of high-profile investors will lead the way. They will have done their own research, they will have their own reasons for investing in a particular market and once they have exposure they very often publish their reasons for investing.
Some people see this as self-promotion but in reality all these expert property investors are doing is putting their reasons for investing into the public domain and letting other investors decide for themselves. You will also notice if you look back in time that not all of these often heavily promoted ideas come to fruition. However, there are numerous occasions where some investors are so desperate for the next property hotspot that they often follow without doing their own research.
Changing the basis of valuations
In these circumstances it is ironic to see properties which were shunned just months or weeks earlier suddenly become hot property – often valued under very different criteria. While there is an argument to suggest historic pricing models are not always correct there is also an argument to say they don’t suddenly change overnight. As more and more investors look towards these new property hotspots what began as a trickle of investment funds can very quickly become a tsunami.
Investors will often literally clamber over each other to grab a slice of the action and this is the time when valuations can very quickly become stretched. Sentiment plays a major role in any investment valuation, on the upside and the downside, and while some investors will sell up and bank a profit before the market turns, others will not be so fortunate.
Do your own research
There is nothing wrong in investing in the next property hotspot, there is nothing wrong in chasing the hot money but you need to do your own research and you need to have a game plan in mind. If you truly believe there is long-term value in this new property hotspot then your investment may turn out to be a long-term play. If valuations do get overstretched in the short term there may be an opportunity to bank a profit, watch the market consolidate at lower levels and then possibly go again.
Some hotspots will emerge out of boredom and a lack of creativity while others will simply emerge due to a significant change in the local economy or a particular type of property. Many investors are like sheep – they will follow the hot money and very often lose touch with realistic valuations. It is imperative that you go into any new investment with your eyes wide open, a grasp of reality and a target in mind. Do not simply follow the crowd because you are bored and you have funds you are desperate to invest. Fortune can very often favour the brave but sometimes fools rush in where angels fear to tread.