As prices continue to escalate in Australia’s metropolitan cities, affordability is proving to be a major barrier. Investors are questioning the viability of investing in city property and there is a growing trend towards investing in regional areas as an alternative. When making this decision, investors need to have a thorough understanding of the commitment that buying a property entails.
Buying in metropolitan cities
With 70% of the Australian population living in cities and suburban area, there is a consistent demand for properties. Cities predominantly have higher capital growth and lower vacancy rates. However, vacancy rates are not uniform across the country. While the national residential vacancy rate is 2.3%, smaller capitals such as Canberra and Hobart have vacancy rates under 1% with major cities such as Sydney and Melbourne sitting at 2.1% and 1.4% respectively.
Median house prices across the country also continue to increase, even if only marginally, by 1.2%. Sydney now has a median house price of $1.15m which can make it an unaffordable for some investors. Yields are also low, with Sydney’s gross rental yield being only 2.8% currently.
This is one of the reasons why investors are looking beyond traditional cities, and in some instances considering investment in regional areas.
Advantages of buying in a regional area
Affordability is predominantly the main reason to buy in a regional area. Although capital growth can be slower, rental returns can be higher. Mackay, as an example, has a median house price of $350,000 and a rental yield of 3.81%. In the Mackay region, the vacancy rate is currently around the same as Sydney – at 2.76%. This makes it an affordable option to buy, yet still have good rental income, at a similar risk of vacancy as for an investment property in Sydney.
A quick tip when researching areas to buy an investment property; do your homework and look for areas where there is a thriving economy and investment in infrastructure. In Mackay, the local government will commence a multi-million dollar infrastructure package of improvements to Port Mackay in 2017. Infrastructure investment is a good indication of the potential for growth in house prices.
Considerations for regional property investment
Capital growth is likely to be less in regional areas than major capital cities as there is greater population in these areas.
Sale times may longer and vacant tenancy rates could potentially be longer.
Fast capital growth can be tied to fast-growing industry. Mining was a good example of this. In regional areas of Western Australia, when mining was a predominant industry, regional property values grew quickly, as did rents. However, when the boom was over, house prices decreased significantly.
Look at regional areas that are not tied to one particular industry, but have a diverse range of industries bolstering the local economy.
Research the areas that you want to buy in (whether metropolitan or regional) and working out what your investment goals are will help you to find the right property to realise your property dreams.
With interest rates at some of the lowest rates in a long time and with lots of different lenders, let Mortgage Choice North Sydney take the hard work out of your mortgage comparison. Let us realise your property investment dreams. Contact Graham Bowling today on 02 9931 6823.