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Location, location, location September 2004
We
have all seen the programmes extolling the virtues of buying in
the right location, but what is the right location? And how do we
find the next property hotspot? asks Abigail Montrose
Are
you are looking to invest in property to make as much money as possible
or do you want to buy a home that will go up in value more than
the average for your area? If so, then you should look out for property
hotspots. These are areas where prices are rising faster than in
the surrounding districts. Ideally, you should buy in an location
that will become a property hotspot after you have moved in. So
what makes an area a property hotspot and how can you predict which
areas will be next?
Sometimes it is just about buying in the right place at the right
time. Those living in the North and Wales have seen house prices
rise by 33 per cent over the last year, according to figures from
the Nationwide Building Society. This compares with average rises
of just 10 per cent in and around London and the national average
of 19 per cent.
“This is primarily because Wales and the North are catching
up with London. While prices in London have increased steadily over
time, these areas have seen sharper rises over a shorter period.
It was a similar situation in the late 1980s,” says Kerry
Hanson, senior economist at Nationwide.
Neighbourhood differences
For most of us, our search for a home will be restricted
to a certain region. But there are often big differences in the
rate at which house prices increase in neighbouring towns.
There are a number of factors that can turn an area into a hotspot.
These include improved transport links, new employers moving in,
the opening of a new university, a major event taking place in the
area, outside money and grants being pumped into it, nearby neighbourhoods
becoming too expensive and good schools and local facilities.
A new road, tram or rail link can have a major impact on house prices.
Chris Hall of Christopher Hall estate agents in Norwich cites the
new rail link between Norwich and Cambridge as an example of this
trend. “Homes in Cambridge have always been markedly more
expensive than in Norwich. But Cambridge is now commutable from
Norwich, so cheaper house prices there have made the area more attractive
and this has had a marked effect on house prices there,” he
says.
The arrival of a new employer can also boost house prices. The types
of property that will be most in demand will depend on the sort
of new jobs being created. For example, middle managers are more
likely to be interested in executive homes than flats in rundown
areas. If the right housing is available, this will become popular,
if it is not available then new developers may well move in.
Similarly, a new university or teaching hospital can lead to demand
for a particular type of housing. Students will be looking for house
or flat shares, making these good areas for buy-to-let landlords.
Certain shops such as book shops, healthfood stores, fast-food restaurants
and bars are also likely to move in to cater for the students and
this can help regenerate the whole area. And, of course, once students
finish their studies they often look in the local neighbourhood
for their first home to buy.
Areas can also become hotspots if they are recognised as having
a particular attraction. For example, Liverpool has long suffered
from an image problem but last year’s announcement that it
is to be the European Capital of Culture in 2008 has resulted in
a huge amount of outside investment being pumped into the area.
Sharp-eyed property speculators, along with the major property developers,
have already moved into the region, says Phil Furlong of estate
agent Venmore, Thomas & Jones.
“Anfield in Liverpool has a lot of old terraced houses that
were looking tired. The major house developers have moved into this
area, clearing much of the site, and their very presence has changed
the look of the place,” says Furlong. The area is now appealing
to a much wider range of homebuyers and this is pushing up prices.
Affordable housing
As prices rise in one locality so homebuyers look to nearby
areas for affordable housing. Areas such as Kensington in Liverpool
have benefited from this so-called rippling effect, explains Furlong.
“A year ago you could buy a three-bedroom terraced house in
Kensington for between £18,000 and £22,000 and they
were difficult to sell. But now these houses are going for over
£100,000,” he says.
Spotting these less popular areas can pay great dividends, points
out Jonathan Haward, managing director of The County Homesearch
Company: “As the housing market is growing year on year, the
trend for affluent buyers to move into traditionally down-at-heal
areas continues. If buyers want to take advantage of this, they
have to spot the signs as early as possible to make the maximum
gains,” he says.
House prices have been heading ever higher, pushing up the demand
for more affordable housing. This has resulted in house prices rising
fastest in more affordable areas.
Financial gains
To get the biggest financial gains out of a property hotspot
you need to choose the right type of housing. As areas become more
expensive, it may be that the smaller, cheaper homes within that
neighbourhood see the highest price gains. Alternatively, it could
be that bigger homes attract a greater premium as people on higher
incomes move into the area. Taking a good look at the local housing
stock is essential if you are thinking of moving into an area just
to make money.
Certain styles of homes may also be more popular than others in
a particular area – for example, Edwardian homes with lots
of original features may be selling like hotcakes, while 1970s homes
may have been spurned.
Similarly, homes where lofts have been converted to create a highly
coveted extra bedroom and bathroom may attract a selling price well
above the cost of actually having the work carried out. Buying a
house in one of these areas and converting the loft may therefore
result in a very healthy profit.
It is also worth looking for areas that attract government and EU
home-improvement grants, as these can represent a great buying opportunity.
For example, the seaside town of Hastings in Sussex was allocated
a home-improvements grant by the EU. Householders could apply for
grants worth tens of thousands of pounds to carry out major improvements
to their properties at little or no expense to themselves.
The school factor
One factor that always turns an area into a hotspot is
good schools. The London School of Economics claims that being in
the catchment area of a good primary school can add up to 33 per
cent on the value of your home, while a good secondary school can
add 18 per cent. Spotting an area where schools are on their way
up the league tables can certainly pay dividends.
But if you are thinking of paying over the odds to move into an
area where there are good schools, make sure you do your homework.
Just because you are in the right catchment area there is no guarantee
that your child will get a place in the school of your choice. And
if results start to flag or the school changes its admission policy,
the value of your home could well fall. Also, just because you have
paid a premium to move into an area with good schools, this does
not mean house prices in the area will rise faster than other local
areas; it just means it is more expensive.
Some areas will always be popular and people will be prepared to
pay a premium to live in them. But if you buy in an area to make
money, it is worth watching out for signs that the good times might
be coming to an end.
If you buy in an area where house prices have seen huge increases,
you want to make sure you are not buying at the top of the market,
advises Nationwide’s Hanson. “Watch out for areas where
prices have risen sharply but lots of people are now selling. They
are probably taking profits and there is likely to be some rebalancing
of the market,” he warns.
Expensive mistakes
Missing the boat can be an expensive mistake. Between
the second quarter of 2002 and 2003 house prices in Barking and
Dagenham rose more than 25 per cent but in the last year they have
barely moved.
Always consider what would happen if a major employer left the area,
advises Furlong. “Be very cautious if an estate agent says
an area is popular because a major employer is there. The employer
could always move and that could have a devastating effect on the
local housing market,” he warns.
Furlong points out that when British Aerospace introduced major
employment cuts to its workforce in Preston, a whole section of
Greater Manchester was affected and this had a notable effect on
house prices. When people are forced to move out of an area for
work, the demand for houses drops, which can then affect other local
businesses and the area can become depressed.
In a rising market, choosing an area just because it is cheap is
no guarantee that it will be the next hotspot. Some areas will always
be unpopular perhaps because of high crime rates, close proximity
to a sewage works or prison, or lack of employment. It will take
a major initiative to lift these areas, so if you are thinking of
speculating here, make sure you are happy to sit it out for what
could be a very long time.
Investment property
If you are buying a house as an investment, then spotting
the next property hotspot is essential. For the buy-to-let investor,
finding an area where there will be constant demand for rental property
is essential. But for those of us looking for a good home, does
it matter if we move to the next hotspot?
If it is your first step on the property ladder, then buying a small
flat in an up-and-coming area may well be important, as you may
want to sell it in a few years and move to a bigger property. But
for those looking to settle down, finding the right house in an
area with the right facilities can be more important than moving
into a potential hotspot.
There seems little point buying a two-bedroom flat in a potential
hotspot if you have a large family. Choosing an area with large
affordable homes, good schools and a low crime rate is likely to
be a much better bet when it comes to quality of life. While the
trendy bars and restaurants that often characterise hotspots are
great for the young and single, many parents with young children
have little spare cash and time to enjoy these facilities.
Similarly, paying over the odds for a house in a good school catchment
area seems pointless if your children are past school age and you
have no plans to move from the area. Good local schools are not
worth paying for if you don’t need them. For most of us, buying
a property is about finding the right home rather than cashing in.
But if it turns into a property hotspot, so much the better.
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