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Although it is not always black and white, it is useful for you to know how to recognise the signs so that you can identify a property hot spot yourself.

Predicting property hot spots is not always a simple task and people often rely on the predictions of others.

Although it is not always black and white, it is useful for you to know how to recognise the signs so that you can identify a property hot spot yourself.

Areas to Consider
When looking for the ideal investment property, there are a few factors that can help calculate which areas show potential. These factors include rental yields and population growth.

According to the Australian Property Monitors, at March 2013 the capital city average rental yields for apartments were 5.46 per cent. The top three capital cities were Darwin at 6.03 per cent, Perth at 5.82 per cent and Canberra at 5.70 per cent.

With population growth, according to the Australia Bureau of Statistics, the following states are above the national population growth average with Western Australia at 3.1 per cent, Queensland at 2.2 per cent, the ACT at 1.9 per cent and Victoria at 1.5 per cent. So combining these two, with strong rental yields and population growth, it looks like Perth could be a good spot to consider purchasing an investment property.

Onthehouse.com.au has recently released new research from Residex showing the top 10 suburbs for investors. These are:

Suburb Residex Median Value Residex Median Rental Yield Predicted Growth Average % p.a. Total Return
Morayfield, QLD $305,000 5.51%    10+% 15+%
Mount Annan, NSW $465,500 5.65% 10+% 15+%
Sanctuary Point, NSW $252,000 5.66% 10+% 15+%
Karabar, NSW                $457,500 5.61% 15+% 15+%
Berkeley, NSW $303,000 5.92% 9+% 15+%
Katoomba, NSW $335,500 5.63% 9+% 15+%
Ngunnawal, ACT $408,000 5.78% 9+% 15+%
Seville Grove, WA $360,000 5.61% 9+% 15+%
Clarkson, WA $393,500 5.82% 9+% 15+%
Moss Vale, NSW $383,000 5.60%    9+% 14%+

Areas to Avoid
There are several indicators which could mean an area will not be a great option for investors. Some of these include areas with an oversupply, high vacancy rates and little demand.
If there are too many properties on the market, this is considered an oversupply and if you combine this with a high rental vacancy rate, it can be a big problem for investors. 
In relation to vacancy rates, figures released by SQM Research have shown that all capital cities, besides Darwin, have seen an increase in vacancy rates during April 2013. The top three capital cities with the highest vacancy rates are Melbourne (2.7%), Hobart (2.5%) and Sydney (1.7%).

According to DSRScore’s research, some of the markets with the highest oversupply statistics include:

Suburb Listings as a % of all properties Vacancy Rate
Burrum Heads, QLD 9.3% 2.8%
Pelican Point, WA 9.0% 3.8%
Wooli, NSW 9.31% 3.8%

All of these vacancy rates in the table are higher than those quoted for capital cities above. So combining this with oversupply as shown in “Listings as a % of all properties” in the area and this could indicate areas that are not ideal for an investment property purchase.

These property ‘hot and not’ spots are a good guide to help you start your research. The information is generalised though and doesn’t take your own financial situation and investing goals into account. The best way to find your own property hot spot is to use this information to conduct your own research and you could uncover your own property hot spot.