In last week’s column I have shared what could some of the most important clues be when a district or a city is going to develop quickly, bringing value to a property investment. After receiving many e-mails from the readers, I have decided to add 5 more factors that can drive population or value to a property. Combined together they build a list of 10 that every property investor should keep in mind before buying.
In the previous column I have described the following factors:
1. Big investors
2. Education
3. Caucasian nights
4. Public transport
5. Government offices
In this column I want to add the following:
1. Banks and insurance
2. Police
3. Hospitals
4. Hotels
5. Family restaurants
Let us analyse them individually:
1. BANKS AND INSURANCE
Finance in general is population driven. One of the largest spending for banks and insurances, is the outreach. Banks, to start with, for the survival of their business model, must offer bank branches and ATMs in areas that are about to grow in population.
“Hot spots” can be taken once, hence large banks are likely to rent the most prominent corners for their ATM location as well as the most premium spots for their customers to feel special.
Although this is a great indicator of investment value for properties, it is necessary to mention that sometimes banks react to population growth while it is already happening, not before it takes place. Hence if you see prominent banks or insurance offices opening in a district that you are considering for property investment, be alert... You might be just too late.
2. POLICE
Undoubtedly when a new Police post is open, it is clear sign that an area is expanding. If too many Police posts open though, it may simply mean that crime is growing.
Hence a property investor must be able to read between lines. Is the Police post opening to fulfil population quota set by the government? Or is the district becoming more dangerous? In both cases however,
Police offices and posts might be mandated to be open only after population or crime has already increased. In other cases though, Police posts are carefully planned by the government on the blueprint of a developing area. Hence it could be just in time, or too late for investing there.
3. HOSPITALS
Opening an hospital is not cheap. It requires millions of dollars and often involves the relocation of the employed specialists. Large property players who build hospitals for business returns, are usually very careful in picking the location and tend to move years in advance compared to small investors. If you find a scenario where a hospital opens when the population growth has not happened yet, be mindful that the hospital investors might be 2 to 3 years early in securing prime location at low price.
Hence you can consider investing there, but it would require you to be able to hold your investment for 2 to 3 years before you may start renting the property. If you do not have any mortgage commitment, it could be a wise choice, but if the loan is impacting your cash flow, avoid over stretching.
4. HOTELS
Tourism and hospitality only survive when there is enough interest in the general public to visit a specific place. Landmarks such as theme parks, museums and green parks are usually main attractions that hotels would not miss for nearby investment.
Hotels, similarly to hospitals, tend to move fast, so when you see large hotel chains coming up, make sure that you can hold your property investment (i.e. mortgage repayment if any) for 2 to 3 years.
If on the other hand, small hotels are opening after the big ones have established, it might be just too late for investing, unless you have purchased a property able to host a boutique hotel.
5. FAMILY RESTAURANTS
There are many type of restaurants, but only one really indicates that population growth is coming. Follow the presence of family restaurants in malls. Even if malls are still mostly empty, when family restaurants start renting, usually other businesses follow. As a chain reaction, more shops being launched equals to more people working in the area as well as more customers visiting the area and eventually more people wanting to stay near the area. In some circumstances however, family restaurants open too early and are unable to sustain the negative cash flow. In those cases, family restaurants will change ownership or close down.
Do not get too excited about generic family restaurants... follow those that have achieved some success on global scale. They usually have done thoroughly due diligence before investing.
Stefano Virgilli
stefano@virgilli.com
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