Property Investors Look Further Afield For Opportunities

More investors are looking beyond the neighbourhoods they live in for investment opportunities after the pandemic property boom saw regional markets surge in value at a greater pace than the capital cities, as more people who could work from home left the cities for greener pastures.

McGrath Estate Agents CEO John McGrath said this regional relocation of owner-occupiers opened investors’ eyes to markets outside their own neighbourhoods. Changes in marketing and technology brought about due to lockdowns, such as video inspections, online auctions and signing contracts electronically, helped buyers feel more comfortable with purchasing property remotely. “The prospect of phone bidding and purchasing properties sight unseen is no longer foreign,” he said.

Data from MCG Quantity Surveyors proves that investors are exploring new markets for investment. The latest data for 2023 shows the average distance between where landlords live and invest has ballooned to 1,502km, up from 857km in 2022 and 294km before the pandemic.

MCG managing director, Mike Mortlock, said the data revealed two insights. “Firstly, property investors remain agile and will park their capital in whichever investor-friendly national location and asset type offers the greatest possibility of maximising their return,” he said. “The second is that Western Australia has become the centre of Australian property investment. There’s little doubt its popularity with real estate buyers from the East Coast has increased the gap between home and investment.” MCG data shows 31.86% of Australian property investors bought in Western Australia in the first quarter of 2023, up from just 9.38% in the first quarter of 2022, revealing “a seismic shift away from east coast property investment”, he said.

In 2023, CoreLogic data shows Perth and Regional Western Australia delivered the best total returns (rents and capital growth combined) for investors of all capital cities and regional areas in Australia. Perth’s total return was 20.7 percent and regional Western Australia’s was 14.8 percent. The best-performing regions were Mandurah and Bunbury with 20 percent and 15 percent jumps in home values respectively over the year. Rents in Perth and Regional Western Australia also increased faster than any other area in Australia, up by 13.4 percent and 10.4 percent respectively.

One of the main attractions of Western Australia to East Coast investors is affordability. The Perth house price median is $691,100 and the regional house price median is $398,915. McGrath Estate Agents CEO John McGrath said: “This move towards remote investing has largely been driven by the perception of better capital growth prospects in the regions, and higher rental yields that usually come with more affordable properties.” Investors in regional areas can usually afford to buy houses, which typically deliver better capital growth than apartments, and they can buy with smaller loans, meaning they can manage rising interest rates more easily.

PropTrack recently put together a panel of industry experts and asked them to create a list of 100 suburbs that they think will outperform in 2024. PropTrack economist Anne Flaherty said 40 percent of the suburbs selected were in regional areas. PropTrak director of economic research Cameron Kusher said the selected regional areas were typically close to a capital city or had a diversified economy. “These tend to be key drivers in regional markets and reflect our expectations of the types of locations in regional areas likely to see the strongest price growth next year,” he said.

Here are some examples of the regional cities or suburbs tipped for outperformance in 2024.

NSW – Dubbo

Simon Pressley of Propertyology selects Dubbo. “Decades of official evidence supports Dubbo’s status as an extremely resilient and low risk option for property investors with a budget of up to $600,000,” Mr Pressley said.

VIC – Delacombe, Ballarat

Buyers’ agent Kate Hill from Adviseable says Delacombe is a fast-growing part of the Ballarat West Growth Area and offers strong capital growth potential and good yields. “Ballarat was recently identified by the ABS as the fastest growing inland city in Australia and, according to some forecasters, can expect more strong price growth,” she said.

QLD – Darling Heights, Toowoomba

Home to the University of Southern Queensland, Ms Hill says Darling Heights has a range of amenities and will benefit from Toowoomba’s involvement in the 2032 Olympics. “There is a massive program of infrastructure development underway, planning more than $13.1 billion of infrastructure and major projects, both private and public,” Ms Hill said.

SA – Victor Harbor

Mr Pressley says Victor Harbor is to Adelaide what the Sunshine Coast is to Brisbane. “It has one the highest rates of internal migration in the country. Very popular for the one in five Australians who now derive their income from home, and for retirees.”

WA – Mandurah

“Mandurah is the lifestyle capital of Western Australia because of everything it has to offer without the big price tag,” said Ray White Managing Director, Dan White. “When it comes to property, Mandurah offers something for everyone, from affordable options for first-home buyers to upmarket canal homes.”

TAS – Launceston

Mr Pressley says this regional city has a diverse economy and “one of the best lifestyle offerings in all of Australia”. “Over the last 20 years, the average annual capital growth rate for Launceston houses of 8.6 percent is far superior to Sydney and Melbourne. Rental yields are also superior.”

Australia’s commodity-rich economy recorded its weakest growth momentum since the early 1990s in the second quarter, as consumers and businesses continued to feel the impact of high interest rates, with little expectation of a reprieve from the Reserve Bank of Australia in the near term.

The economy grew 0.2% in the second quarter from the first, with annual growth running at 1.0%, the Australian Bureau of Statistics said Wednesday. The results were in line with market expectations.

It was the 11th consecutive quarter of growth, although the economy slowed sharply over the year to June 30, the ABS said.

Excluding the Covid-19 pandemic period, annual growth was the lowest since 1992, the year that included a gradual recovery from a recession in 1991.

The economy remained in a deep per capita recession, with gross domestic product per capita falling 0.4% from the previous quarter, a sixth consecutive quarterly fall, the ABS said.

A big area of weakness in the economy was household spending, which fell 0.2% from the first quarter, detracting 0.1 percentage point from GDP growth.

On a yearly basis, consumption growth came in at just 0.5% in the second quarter, well below the 1.1% figure the RBA had expected, and was broad-based.

The soft growth report comes as the RBA continues to warn that inflation remains stubbornly high, ruling out near-term interest-rate cuts.

RBA Gov. Michele Bullock said last month that near-term rate cuts aren’t being considered.

Money markets have priced in a cut at the end of this year, while most economists expect that the RBA will stand pat until early 2025.

Treasurer Jim Chalmers has warned this week that high interest rates are “smashing the economy.”

Still, with income tax cuts delivered at the start of July, there are some expectations that consumers will be in a better position to spend in the third quarter, reviving the economy to some degree.

“Output has now grown at 0.2% for three consecutive quarters now. That leaves little doubt that the economy is growing well below potential,” said Abhijit Surya, economist at Capital Economics.

“But if activity does continue to disappoint, the RBA could well cut interest rates sooner,” Surya added.

Government spending rose 1.4% over the quarter, due in part to strength in social-benefits programs for health services, the ABS said.