How to find capital growth hot spots
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How to Find Capital Growth Hot Spots. First Understand Capital Growth Drivers. There are two main types of capital growth drivers : Extrinsic, and Intrinsic. Extrinsic Factors. Interest Rates. Economic Conditions. Sentiment.

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How to Find Capital Growth Hot Spots

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How to find capital growth hot spots

How to Find Capital Growth Hot Spots


First understand capital growth drivers

First Understand Capital Growth Drivers

  • There are two main types of capital growth drivers :

    • Extrinsic, and

    • Intrinsic


How to find capital growth hot spots

Extrinsic Factors

Interest Rates

Economic Conditions

Sentiment

Have the greatest impact on when, how big and how long a property boom will be. Factors like interest rates, global economic conditions, sentiment.

As individuals we have little control over these factors. However, the important thing is to ensure we are holding enough property before the next boom to achieve our planned results. See our presentation on property cycles.

In picking capital growth hot spots we are more interested in understanding intrinsic factors


How to find capital growth hot spots

Extrinsic Factors

Interest Rates

Economic Conditions

Sentiment

Extrinsic Factors

Demand

Supply

Intrinsic Factors

So we have extrinsic factors that broadly fuel a property boom and impact the intrinsic factors of demand and supply. But as capital growth hot spot hunters we are more interested in the intrinsic factors of demand and supply.

What are these demand and supply factors?


Understanding the demand supply umbrella

Understanding the Demand/ Supply Umbrella

  • To understand this capital growth demand/ supply umbrella first understand how cities expand:

  • Cities expand in concentric circles from their point of origin. Take for example Auckland, New Zealand:


How to find capital growth hot spots

Concentric Circle Theory

Albany

Henderson

New Lynn

Te Atatu

Avondale

Waterview

Ponsonby

Takapuna

Waiheke

CBD

Kingsland

Great Barrier

Mt Eden

Parnell

One Tree Hill

Epsom

Mission Bay

Onehunga

Remuera

Glendowie

Ellerslie

Mt Wellinton

Glen Innes

Botany Downs

Otahuhu

Otara

Flat Bush

Manurewa


Ripple affect

Ripple Affect

  • Imagine you were looking down on the last slide

  • Now let’s look at it from the side


How to find capital growth hot spots

Ripple Effect


Ripple affect1

Ripple Affect

  • What we see is that, as one suburb becomes unaffordable for a segment of the population that would have typically bought in that area, then they overflow to the next circle.

  • The fundamental question then is…


Overflow question

Overflow Question

  • When extrinsic factors kick off a property boom, which concentric circle will the greatest number of buyers flow to, and within that circle which suburbs will they buy in.

  • So now let’s return to the demand & supply umbrella to analyse these drivers in property terms.

  • They will tell us about an area’s ability to grow long into the future. Most areas show they can grow, but it’s how strong that growth will be and whether that growth continues that is vitally important. In order to buy property that has characteristics for sustained growth we need to consider the intrinsic factors.


How to find capital growth hot spots

Intrinsic Factors that drive LONG TERM Growth

Demand

Supply

Population

Population growth

Demographic makeup

Firstly the demand side. We want to know how much the population will grow by, where that growth will occur, and what the population will be like – i.e. the demographics.

Secondly, the median house price is where most people are buying at any point in time. Who buys at the median? Typically the first home buyer. Sure there are first home buyers that can afford more expensive homes, but most will buy around the median.

So we think it makes sense to start by focusing attention on the band in the concentric circle where houses are selling at the median, then refining that by looking at where population growth is likely to occur.


How to find capital growth hot spots

Intrinsic Factors that drive LONG TERM Growth

Demand

Supply

Population

Land & Use of

Population growth

Demographic makeup

Accessibility

Land development

Community development

Now the supply side. We want to know that there is housing availability at the median house price, but not too much of it, that it is accessible and that there are amenities and culture that will make it attractive to live there.


How to find capital growth hot spots

Intrinsic Factors that Drive Long Term Growth

Demand

Supply

Population

Land & Use of

Population growth

Demographic makeup

Accessibility

Land development

Community development

  • Past growth and Projected growth by natural increase (births and deaths) and migration

  • Population size – is it conducive to steady growth

  • What type of people live there – age, income levels, family types; what are their housing needs?

  • Employment in area or close by?

  • Rental prices: in keeping with median incomes?

  • Public Transportation - buses - rail

  • Roading

  • Land availability/ release of new land

  • Intensification of zoning

  • Building/ Development approvals by council

New schoolsRecreation facilitiesParksCafesRetail shopping CommercialEntertainment


How to find capital growth hot spots

Capital Growth Driver Overview

Extrinsic Factors

Intrinsic Factors


Where to now

Where to Now?

  • Hopefully you now know what you need to know.

  • The next step is start researching and reading and speaking to the right people. Don’t start physically searching for a property untill you are really confident about the areas you think will generate maximum capital growth.

  • Once you’ve done this then you are ready to create your buying profile. Contact us for our complimentary profile template.


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