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Investing in metro v. regional areas

The big smoke can hold plenty of appeal for property investors but regional Australia can also offer valuable opportunities – if you know where to look.


If you’re thinking of buying an investment property, it can make sense to look beyond your own suburb – even your own city. After all, diversification is one of the golden rules of successful investing.

But investing in regional locations calls for a little more homework – and a commitment to buying with your head and not your heart. Country areas can offer some stunning locations, however as a landlord you need to be sure a property stacks up on numbers rather than for scenery.

What to weigh up

Affordability

If you’re looking for affordability, there’s no doubt regional locations can offer plenty of buying power.

The latest figures from research group CoreLogic1 show that across our combined capitals, the median property price is $655,236 compared to $357,480 for regional Australia.

Potential for long term capital growth

A significant factor behind the city/country price gap is basic supply and demand: more people want to live in the city, often because of greater employment opportunities.

So, if you’re investing for long term capital growth, it’s critical to look for regional areas experiencing population growth, which underpins demand for homes and long term price gains.

The Illawarra region of New South Wales for instance has seen 52% population growth over the last decade2, and this is driving the property market. According to CoreLogic3, the Illawarra is a standout regional performer, with house values rising 13% over the past year, and unit values skyrocketing by 17%.

In Victoria, some locations around Geelong have seen 82% population growth since 2016, and not surprisingly, in the year ended September 2017, Geelong values climbed 8.8%.

Rental yields

The stronger long term capital gains of metropolitan areas tend to be accompanied by lower rental yields compared to country locations. As a guide, city-based yields nationally are about 3.4% at present, compared to 4.9% in regional locations1.

In some regional cities, like say, Broken Hill in far western New South Wales, landlords can pocket yields as high as 9.4%4. The flipside is low capital growth. In Broken Hill’s case, values have risen just 3.2% over the last five years.

However, for buyers who choose a regional growth area, it can be possible to have your cake and eat it too – pocketing decent capital growth and healthy yields. Infrastructure projects that make a township more accessible to metro centres, can often underpin this.

In Ballina on the New South Wales far north coast for example, the local property market has benefited from extensive upgrades to the Pacific Highway, and while rental properties are earning yields of about 5%, values have escalated up to 9.1% over the last year. In the Victorian regional city of Ballarat, where the train link to Melbourne is being upgraded, yields are 5.4% and values have climbed up to 7.5% in the past 12 months.

What to watch

If you’re buying outside your own area, be aware that travel expenses previously allowed in relation to inspecting, maintaining or collecting rent on your investment property can no longer be claimed from the current (2017/2018) financial year5.

In the past, the ability for, say, a Melbourne-based investor to claim the cost of travel to visit a rental property on the Queensland Sunshine Coast, was often part of the appeal of owning a regional property. This is no longer the case, and it’s worth being sure there is a reputable property manager available in any area you plan to buy in – unless you plan to wear the travel costs associated with owning a regional rental property from your own pocket.

To find out how you can tap into regional property markets, contact your local Mortgage Choice broker.

You might also be interested in:

 


1CoreLogic Hedonic Home Value Index, January 2018 Results

2http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/3218.0Main%20Features202016?opendocument&tabname=Summary&prodno=3218.0&issue=2016&num=&view=

3The Illawarra Region In NSW Continues As Top Performer In September Quarter https://www.corelogic.com.au/regionalreport#.WpMVkTEUnIU

4https://www.corelogic.com.au/sites/default/files/2017-12/2017-12-06--CL_Quarterly_regionalreport.pdf

5https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-individuals/Disallow-the-deduction-of-travel-expenses-for-residential-property/


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