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Hotspots an investment dangerzone

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As the market continues to record strong growth, investors who rush to buy into the latest boom suburb may leave themselves vulnerable to risk, a property investment adviser has warned.

Although certain markets around the country are currently experiencing record growth, investors may be losing out by buying into these markets, according to Neil Smoli from Aviate Group.

“Whenever the market for investment property is said to be booming, it makes it more difficult for investors to negotiate favourable terms,” Mr Smoli said.

“They risk paying too much. Yields are jeopardised and they are more exposed to negative equity should a correction occur.”

In addition, he said developers often flood well-performing markets with new stock.

“Developers will often release new stock in areas in which investors are circling, in the knowledge that whatever becomes available will be the subject of strong demand,” he said.

He encouraged investors to look beyond the latest hotspot and find alternative ways to take advantage of the current growth wave.

“Often it is those suburbs neighbouring hotspot suburbs, which enjoy similar benefits and investment prospects but aren’t yet awash with properties at inflated prices, that offer the greatest potential upside for investors,” he said.

“Investors should always seek to differentiate themselves in the market, and this extends to the properties they invest in as well.”

Overall, he said too many investors were governed by a fear of missing out rather than sound research and decision-making.

“Investors who act on this fear, those who fail to undertake the proper research prior to investing and those who don’t understand their own investment appetite and capacity, leave themselves open to risk,” he said.

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