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Are hotspots really that hot?

Are hotspots really that hot?

Wed August 8, 2012 1:03pm

EVERYONE loves a bargain in a property hotspot. But just remember, hotspots are predictions, not guarantees.

A cheap property in one of these booming areas can be a great buy as it provides an affordable starting point into the property market and a way to build some equity. But beware, as it may also only be profitable for the short term.

A suburb is dubbed a hotspot when it is just about to undergo massive capital growth. This can give the buyer instant equity and could create a chance to build a deposit for the next purchase. But there are disadvantages.

Hotspots are predictions, not guarantees

What if the boom never happens? If something is predicted as a hotspot, there has to be a risk that it won't happen. If you buy property in the area that was predicted to grow and didn't, your investment may be worth less than you originally thought it would be.

The hotspot could grow for a few years, but there is no guarantee that the trend will continue. You have to ask yourself if it would be worth the capital gain to have to sell your property a few years later when the prices had dropped. After the cost of getting in and then out and having to pay all the taxes, will there be any profit left?

Hotspot or blue-chip suburbs?

Buying a bargain or a property in a hotspot could make you thousands of dollars in the short term. But a property at market value in a blue-chip suburb that doesn't rise in the short term can make you tens of thousands over the long term.

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