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Recognising the next best thing

Monday, September 10, 2007

With the residential property cycle having levelled off and heading for a downswing, buyers still wanting to invest should learn to spot up-and-coming areas.

With many a wise word often spoken in jest, investors will joke that they know an area is about to take off when it gets its own Woolworths Food Store and a branch of Pam Golding Properties. This often isn’t that far from the truth, says property economist Erwin Rode of Rode & Associates.

“The ‘Woolies Factor’ cannot be ignored - large retail outlets tend to do extensive research as to where people are moving before they invest in an area,” says Rode.

In the UK, a new Sainsburys in the neighbourhood is a strong upwardly mobile indicator, as is a branch of the coffee-shop chain Starbucks in the USA. Usually a healthy influx of new shops and eating establishments follows, as small, well-supplied shopping developments begin to grow around larger anchor tenants. The development of a new commercial area is also an indicator, particularly when major corporates relocate their head offices into the neighbourhood.

Likewise, estate agencies opening their doors in the neighbourhood are another strong indicator, often clustering door-to-door along a developing high street.

However, according to Rode, there are a number of other economic indicators that can be used to determine that an area is about to take off.

“Residential building activity is perhaps the most obvious, and is often evident in an older suburb that is experiencing a new lease of life,” says Rode. “Countrywide, examples in the past few years have included Killarney in Johannesburg, the Florida Road area in KwaZulu-Natal and, more recently, Woodstock and Rugby in the Western Cape.

“Evidence of this revival should include a healthy mix of both improvements being made to older, existing buildings as well as the ground-up construction of new residential developments.”

However, an abundance of ‘For Sale’ signs can often be misconstrued, warns Rode, and does not necessarily indicate an up-and-coming area; investors should be aware that an abundance of property on the market at any one time could also indicate an area either in decline or in over-supply with previous investors starting to experience panic and resultant ‘fire sales’ starting to occur.

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