Now’s a good time to consider an investment property in regional Australia
A new report has identified Australia’s top regional property markets. Is it time for you to invest?
Property investors are often warned off regional areas but with prices in capital cities skyrocketing, regional Australia might be one of the last havens for affordable investment opportunities.
Regional areas certainly come with their own unique risks, but a savvy investor can still find success looking outside the capitals. If you know where to look and what to avoid, you could see returns nearly on par with some of the country’s most expensive markets.
Look for regional hot spots
CoreLogic’s latest regional update has revealed the best performing regions across the country. It’s perhaps little surprise that New South Wales outperformed other states. As Sydney’s property market becomes increasingly unaffordable, buyers are looking further afield and regional areas are benefitting.
The Illawarra region saw the strongest annual increase in home values. House prices were up 15.8% for the year to the June quarter while unit prices rose 14.4%. Amazingly, that actually pips Sydney’s performance for the year to August 31. Dwelling values in Sydney were up 13% over that period.
The Illawarra presents a wide range of opportunities for investors, from bigger metro areas like Wollongong to smaller lifestyle areas like Kiama.
The drawback with the area, of course, is that Sydney’s skyrocketing prices have had a halo effect on these areas. For instance, the median house price in Wollongong is $850,000, and is roughly equal to the median price somewhere like Shellharbour or Kiama. The area is more affordable than Sydney, but still relatively expensive.
Likewise, Melbourne-adjacent Geelong has a median house price of $713,750.
The good news is that these areas are set to continue their growth, according to CoreLogic analyst Cameron Kusher.
“With mortgage rates still low, the attractiveness of housing, particularly in some of the larger coastal regional markets, is likely to continue to show further growth over 2017,’’ Kusher said.
These markets also have healthy rental yields. The Newcastle/Lake Macquarie region saw rental yields of 4.3% for the year to the June quarter, while the Illawarra saw 4% rental yield.
Regions close to Melbourne saw similar performance, with house values in the Geelong region up 8.3% and unit values up 5.6%.
Avoid one-industry regions
Regional areas overly reliant on a single industry are particularly volatile, and that shows through in the CoreLogic results.
“Unfortunately, regional areas closely linked to the resources sector are still doing it tough; while conditions are generally stabilising in these areas we expect relatively soft conditions to continue throughout the year,” Kusher said.
In fact, mining-reliant Townsville and tourism-focused Wide Bay were the only two regional areas to see a fall in both house and unit prices over the year, CoreLogic said.
This is particularly pronounced in some small regional towns that sprang up around the resources boom. A January 2017 report from Moody’s Investors Service found 43% of mortgages in Western Australia’s remote outback regions had fallen into negative equity.
While it’s a bit of a no-brainer to steer clear of mining towns, even industries that are booming now can spell disaster for investors if they buy in a town or region entirely reliant on that industry. When you’re considering regional investment, look for areas that have a diversified economy and plenty of employment opportunities.
Do your research
Before you decide on a regional area for investment, make sure you’ve done your due diligence in determining its potential.
There are a few key factors to look for when you’re trying to identify regional growth areas. Look for areas with big infrastructure projects on the way. Not only will these projects create employment opportunities, they’ll also improve access to the area and provide amenities that can make for a more attractive lifestyle for buyers.
You’ll also want to make sure the local economy is growing. Pay close attention to employment trends. A region with rising joblessness is one to avoid.
Know your strategy
It’s difficult to properly invest without a metric for success. Before you put money into a regional area, decide on your property goals. Knowing this can change the area in which you choose to invest.
For instance, if you decide that capital growth is the most important factor, areas like the Illawarra or Geelong might be attractive.
Conversely, if you’re more concerned with generating rental income, some areas with poorer capital growth actually have stronger rental yields. Townsville, for example, has seen property values fall, but generated 5.2% rental yield for the year to the June quarter.
Before you invest, ask yourself a few questions about your strategy. How important is rental yield? How much capital growth are you expecting? How long can you wait to see a return on your investment? Deciding this now will help you measure your success in the future.
After you’ve done your own research, you may also want to enlist the aid of a buyer’s agent. Buyers’ agents can provide you with a wealth of expertise and local knowledge, and can inspect properties on your behalf if you’re unable to travel to regional areas yourself.
Once you’ve identified an area in which you want to buy, you’ll likely also want to find a good property manager. A property manager who understands the local market can help you find the right tenants for your property, and can liaise with those tenants and ensure your investment is being treated with care.
Invest with your head
One of the attractive qualities of regional areas can be their remoteness from big city life. Lifestyle areas can seem like an attractive investment, but aren’t always the strongest performers.
The trap many investors can fall into is making an investment decision based on their personal affinity for an area rather than based on data and historical performance. In other words, it’s easy to fall in love with the idea of a remote coastal area when you’re on holiday there, but that doesn’t necessarily make it a wise investment.
Many regional investors make the mistake of actually buying a holiday home, but tricking themselves into believing they’ve bought it for investment purposes. There’s certainly nothing wrong with buying a home in an area where you want to holiday, but you’ll need to be realistic about your motivations and the likelihood of generating decent returns.
Ultimately, it’s vital that you invest with your head rather than your heart. After all, a wise investment in a regional area could potentially fund that holiday home sometime in the future.