The ripple effect is a great way of spotting the next property hotspot. We bang on about this over on the Property Podcast a fair bit – but what exactly is it?
Put simply, the ripple effect is a phenomenon where property prices rise in one area and spread outwards towards other areas. A kind of domino effect, if you like.
It happens once an area becomes desirable. People get priced out of that area, so they start to look a bit further afield, whilst staying as close to their original area as possible.
The cycle continues and people keep moving further out, and so the ripple goes further and further. Hence calling it the ripple effect.
So you have undesirable locations becoming highly desirable, reflective in both the demand for property and the increase of house prices.
One thing to remember is that there could be one initial event that sets this off, or several. So learning from past instances can help you spot the very beginning of a ripple effect. This can be a major factor in you making sound property investment choices.
Gentrification can be one reason.
An area suddenly gentrifies – it starts becoming nicer, and property prices begin to rise.
Or it could be foreign investment that causes price increases.
People forget, but after the financial crisis hit in 2008, London property prices fell harder than most places in the country.
So how did they bounce back so quickly?
Foreign investors – from China, from Russia, from all over the globe – decided that London was a safe haven for money. So lots of investors bought prime property, and prices began to rise.
That meant people who would’ve liked to live central got pushed further out, and this carried on rippling until the whole of the South East saw prices recover – with even places like Luton and Stevenage having their moment.
But remember, it was international investment that was at the start of it – always look out for the event that will cause the ripple effect to begin.
At a time, you’d have had to be pretty brave and courageous to invest in central Manchester property. But – you’d have been right to do so, and you’d have seen the value of your property rise significantly.
Look at Salford – a prime example of the ripple effect at work. Fifteen years ago very few people would have been telling you that Salford was a sound investment. Work began on MediaCityUK in 2007, and what’s happened to property prices since then? Between 2014 and 2017 alone, Salford experienced 38% house price growth – some of the highest rises in the country.
As a starting point, look at the areas people want to live in, then look at the transport links – are there places along the transport route that make it easy for people to move near or commute to a desirable area?
Does it look like somewhere that’s previously experienced a ripple? Is there UK or foreign investment coming in? Is there a hive of activity that’s already begun from developers or housebuilders?
It takes confidence to invest in areas that haven’t yet moved, but you can use the ripple effect to your advantage and learn to spot the hotspots before they’ve even begun to get warm.
We’ve also done a handy podcast on the ripple effect over on The Property Podcast, so head over and have a listen.