It happens around the country every year. The property experts release their Top 100 hotspots throughout Australia detailing where the best buys for capital growth are likely to be.
And every year property investors jump on the bandwagon hoping to secure the right house / unit in the right location for the right price, all with an expectation of great things to come. These popular lists are considered the property bible by many who take their word as gospel and hope their financial prayers will be answered.
They say hindsight is a wonderful thing especially if it can teach us a few lessons, so research house RiskWise Property Research has taken a retrospective look at the 2014 Top 100 Hotspots - and where they are now. The results tell a sorry story.
CEO Doron Peleg said as experts in risk management and property investment - and considering the significant risks associated with property investment in an ever-changing market - RiskWise was keen to understand whether the hot-spot approach to making property investment decisions really could predict the best returns.
“Sadly, we found that when you apply an in-depth risk-return approach with a macro-overview, and review this over three years, many hotspot suburbs have significantly underperformed,” Mr Peleg said.
“This has most certainly resulted in many investors losing money, particularly in regional and mining areas.
“Our research on hotspot predictions and their three-year results, suggests that only 37 per cent of houses and 33 per cent of units of the Top 100 2014 Property Hotspots performed as well as the market benchmark. Which means that, overall the 2014 Hotspots, performed significantly lower than the benchmark.”
Mr Peleg said the low success rate was similar to the results achieved by property experts when identifying the 2011 and 2012 Hotspots.
He said one of the key factors in the poor predictions was the lack of a comprehensive risk-return analysis on region, location, suburb growth, property type and features.
“In the absence of that analysis it is harder to properly identify and accurately assess the risks and the projected returns,” he said.
“The second issue is that other macro-factors were probably not taken into consideration. For example, though the mining boom was over, and business investment in the mining states was therefore likely to be poor, leading to poor economic growth, a weak job market, low population growth, and therefore, poor capital growth, 36 of the 100 HotSpots were in WA and QLD.
“In fact, none of the hotspots in WA and the NT met the benchmark and only two of the 23 hotspots in QLD outperformed the benchmark.
“Frankly, we feel that is a very surprising result, particularly since the hotspots were ‘formulated through an intensive research process and calculation methodology’ and ‘by Australia’s top property market analysts’.
“It goes to show how important it is to perform risk-based research and get independent, balanced and informed advice from different sources.”
The following report shows RiskWise’s detailed analysis of the 2014 Hotspot predictions and the steps that should be taken to avoid similar false forecasts in the future.
