When it comes to property, the old adage "location, location, location" still holds true because investing in real estate is not just about buying bricks and mortar; it’s about buying into a neighbourhood and community.
This is according to Claude McKirby, Co-Principal of Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs and False Bay, who adds that beyond the current state of a neighbourhood, savvy buyers and investors know that the real gold lies in identifying areas poised for future growth and appreciation.
“Identifying an area on the rise can lead not only to significant financial rewards but also an improved quality of life as these indicators not only signal potential property value appreciation but also reflect broader economic, social, and infrastructural shifts that contribute to a community's transformation.
But how do you spot an area poised for growth before it becomes the next hot spot?
“Neighbourhoods don’t transform overnight, but there are clear signs that signal an area is on the upswing and identifying a neighbourhood poised for growth before it becomes the next hot spot can be the difference between a savvy investment and a missed opportunity.” says McKirby.
He cites the following five key indicators of an up-and-coming area:
1. Infrastructure Developments
“One of the most reliable signs of a neighbourhood on the rise is new or planned infrastructure projects as improved public transportation, road improvements, and public utilities like parks and shopping centres can dramatically increase an area’s appeal and accessibility.”
Mckirby’s advice is to keep an eye on local government announcements and urban planning reports to stay informed and to be cautious of areas where infrastructure improvements are delayed or cancelled, as this could signal a lack of commitment to the neighbourhood’s development.
2. School Improvements
“The quality of local schools is a major factor for families when choosing an area so, even if you don’t have children, investing in an area with strong or improving schools can lead to higher property values.
“On the flip side, declining school performance or budget cuts can be a red flag as poorly rated schools can deter buyers and lead to stagnant or declining property values,” cautions McKirby.
3. Local Business Growth
“A thriving local economy is a hallmark of an up-and-coming neighbourhood and the establishment of new businesses, restaurants, and retail stores can signal growing demand and investment in the area.
“The opening of trendy coffee shops, boutique stores, or popular chain restaurants often indicates that entrepreneurs see potential in the area and, this in turn creates job opportunities which attracts people to the area, boosting the economy.
“Likewise, suburbs where revitalisation projects such as the restoration of historic buildings or the development of mixed-use spaces in older buildings are happening will often experience significant growth.”
McKirby adds that, conversely, a high number of vacant shopfronts or businesses closing down can be a warning sign as it may indicate a lack of consumer interest or economic challenges in the area.
4. Demographic Shifts
“Changes in the demographic makeup of a neighbourhood can provide valuable insights into its future trajectory.
“For instance, an influx of young professionals or families often signals growth, as these groups tend to invest in their homes and communities and areas that attract artists, musicians and creatives often experience cultural revitalisation, which can lead to increased interest and investment.
He cautions investors to be wary of areas experiencing a significant outflow of residents, particularly long-term homeowners as this could indicate underlying issues, such as rising crime rates or declining quality of life.
5. Real Estate Market Trends
Monitoring property market trends will help you identify neighbourhoods with strong growth potential so it’s essential that investors do their homework.
McKirby says that factors to note include sale prices, inventory and development.
“Steady increases in home prices often indicate high demand and limited supply, both of which are positive signs for future appreciation as a shortage of available homes can drive competition and push prices higher. And increased construction of new housing developments or apartment complexes suggests that developers see potential in the area.
“However, rapid price increases without corresponding improvements in infrastructure or amenities can lead to a housing bubble, so it’s important to approach such markets with caution.”
While it’s exciting to identify a neighbourhood on the rise, it’s equally important to recognise signs of decline and McKirby notes the following red flags to watch out for:
1. High Crime Rates: Safety is a top priority for most buyers so rising crime rates can deter potential residents and lead to declining property values.
2. Poor Maintenance: Neglected homes, overgrown lawns and pavements, and littered streets can indicate a lack of community pride or investment.
3. Declining Population: A shrinking population may suggest that residents are leaving due to economic or social challenges.
4. Stagnant or Declining Home Values: If home prices are stagnant or decreasing, it could signal a lack of demand or underlying issues in the area.
- Lack of Investment: A neighbourhood with little to no new development or infrastructure improvements may struggle to attract buyers and businesses.
“Whether you’re buying a home for your family or investing in a rental property, choosing the right neighbourhood is key to achieving your goals,” says McKirby.
“And although no indicator is foolproof and property markets can be unpredictable, by arming yourself with knowledge and staying informed, you can make smarter decisions and position yourself for long-term success in the residential real estate market.”
