Choosing a good regional investment

Regional areas in many parts of the country have experienced solid property growth over the past 18 months, as buyer demand ripples away from Sydney and Melbourne.  Investors and homeowners have been lured away from these capital cities as the price of dwellings skyrocketed between 2012 and 2017, and value for money became comparatively grim.

At the same time, the benefits of living in a regional area look increasingly compelling as a better quality of life becomes more achievable. Convenience and culture are commonplace as major shopping centres and hip cafes pop up. As populations swell, there are better jobs available in regional areas, and some government departments are leading the way by decentralising. In some cases, local wages are comparable to those in the cities.

Improved infrastructure has made commuting to a major city for work an option. The NBN rollout has helped make the move more attractive too, as well as enabling ex-city dwellers to work remotely or even start their own business. Add all this to an affordable, quality property and a life with less traffic congestion, pollution and stress, and you have yourself a winner. Or do you?

Property results in 2018 released by Core Logic last month are a mixed bag, but there are certainly indicators of promise in a number of regional areas. While the combined capitals index showed a 5.3% decline over the 12-month period, the combined regional index recorded a 0.3% increase.

Regional property value growth

Regional Victoria was the highest performing region nationally, with Latrobe-Gippsland (up 8.7%), Ballarat (up 8.3%), Geelong (up 8.2%) and Bendigo (up 4.5%) the top performers. Regional Tasmania also experienced significant price growth, with dwelling values up 8.7% overall.

Property values in regional Queensland and South Australia remained in positive territory last year (up 0.2% and 1.9% respectively), as these markets appear to be very resilient to the downturn in Sydney and Melbourne. Queensland’s Gold Coast and Sunshine Coast, up 0.1% and 2.3% respectively, continue to see demand in the form of migration from Brisbane and this is expected to continue. The regional South Australian towns of Port Lincoln, Port Pirie and Mount Gambier all experienced solid gains last year, outperforming Adelaide. As state governments pledge to spend big on infrastructure and employment across their respective regional areas, these markets are poised to do well.

On the other hand, recently flourishing regional areas in NSW such as Shoalhaven/Southern Highlands, Newcastle/Lake Macquarie and Illawarra experienced declines in property values last year, down 4%, 4.1% and 6.2% respectively. However, regional NSW dropped by just 0.7% overall, which shows solid resilience given Sydney’s 8% decline. Regional Western Australia fared far worse, notching up a 6.1% decline for the year, compared to Perth’s 4.2% decrease.

Regional property investment isn’t for the faint-hearted, as demand and supply tends to be much more fickle than in major cities. However, with a lot of careful research a regional property can be a great addition to your portfolio. So, how do you find a good investment?

The essentials in regional property investment:

1. A rapidly rising population is a must, with large-scale infrastructure in the pipeline being another indicator of capital growth.
2. A strong local economy is also key. If growth in median household income is higher than inflation, it indicates the area is becoming affluent and people are spending money. Lots of new businesses establishing in the area – and not too many closing down – is a good sign.
3. Economic diversity is important. It’s very risky to invest in a town that relies on only one industry. Look for towns close to a prominent regional centre with a large established population, as they are more likely to have several strong industries. They also tend to have a good mix of employers, which helps keep vacancies low and demand high.
4. A big development such as an airport or hospital, while not essential, will attract people for employment and the property market tends to follow.
5. Steer clear of tourist hotspots that have nothing else going for them. They can be unstable, seasonal and easily fall out of favour. Some investors fall into the trap of buying where they would like to take a holiday or retire. It’s far better to choose your property based on solid fundamentals, then you’ll be able to afford to holiday or retire wherever you like.

When to jump on property investment:

Timing your entry is more important in smaller markets as ‘time in the market’ doesn’t always serve you well. Look for areas with low supply and high demand from purchasers. This is easier said than done; however, here are a few barometers you can use to compare one area to the next.

• Low discount rates and high clearance rates typically mean demand is strong.  
• Low vacancy rates indicate an area is popular with renters, which usually puts upwards pressure on rents and yields, attracting investors. At the same time, high rents can push renters towards buying, putting more upward pressure on prices.
• Low days on market points to strong demand compared to supply.
• Low stock on market means supply is low compared to demand, as properties tend to get snapped up by eager buyers.

Making money from a regional property purchase requires careful preparation, research and analysis. Your Mortgage Choice broker can give you the latest property sales reports on any area and help you structure your finance the right way to minimise repayments and mitigate risk.