Should you invest regionally?

With house prices in Sydney, Melbourne and other metropolitan areas nearing record highs, it’s tempting to look further afield. Buying a home regionally can be a good option for first home buyers keen to break into the market. Regional areas can also be a good place to purchase an investment property.

Market factors, combined with improvements to infrastructure in regional areas, make buying regionally an attractive option. Here, we look at some aspects to consider when investing regionally.

Rural property market tips

Property market watch

While buying in regional Australia may have romantic appeal, you have to be practical about the decision, which is why you need to consider the potential for capital growth.

Recent CoreLogic data found that parts of regional Australia foster a healthy market. The biggest growth in house prices in the recent quarter was in Geelong, Victoria. The NSW Illawarra region, south of Sydney, had the largest growth in unit values. Market growth was also strong in Newcastle and Lake Macquarie, while the Richmond-Tweed area recorded the largest jump in rental rates in 2017.

CoreLogic data analyst, Cameron Kusher says, “The regional markets analysed have for the most part seen quite strong increases in values highlighting that demand for housing in these markets continues to grow as capital city markets have started to see values fall.”

Rural rental returns

In some regional areas, you’ll depend on capital growth for a return on your investment. For areas with softer growth, you’ll probably depend on rental return.

Rental returns are affected by supply and demand. Areas with fast construction growth tend to have moderate rental returns, compared to areas with fast population growth and limited housing supply.

According to recent CoreLogic data, the highest rental yield in regional NSW is in the Far West and Orana. In Victoria, the highest rental yield is in the North West, followed by Shepparton. In Queensland, the Queensland Outback offers the highest rental yield.

Bear in mind, though, that maintenance costs can impact your return. And as of July 2017, travel expenses related to property inspections, maintenance and rent collection can no longer be claimed as a tax deduction by an investor.

Rural property market trends

Market trends change, but if you are considering a regional investment, look at future growth and expansion in the area.

Regions like Newcastle and Lake Macquarie, for instance, are benefitting from improved transport connections to Sydney. The improved Pacific Highway has boosted the market in Ballina, NSW. Likewise, the train link between Melbourne and Ballarat has positively affected house prices in Ballarat.

While no-one can guarantee how the rural property market will perform, Kusher is positive about regional areas. “With capital city values generally slowing or falling over recent months it is reasonable to expect that this may lead to slower overall growth in regional markets too. Nevertheless, over the coming months we expect values to continue to rise in most regional markets and outperform their capital city counterparts.”

If you are considering a rural investment, book a chat with your Mortgage Choice Broker to work out your home investment options and to identify if this kind of investment meets your requirements. Find your local Mortgage Broker in Melbourne or your local Mortgage Broker in Sydney. It is also important to note that past performance is not a good predictor of future results, and this should be considered as part of your decision to invest.