Why it's worth digging a little deeper for regional real estate gold | Kanebridge News
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Why it’s worth digging a little deeper for regional real estate gold

As prices falter in Australian capital cities, regional areas continue to offer good value, if you know where to look

By KANEBRIDGE NEWS
Thu, Dec 8, 2022 12:55pmGrey Clock 2 min

It could be argued that the 2022 real estate rollercoaster of the Australian property market has not been felt harder than in regional areas, with CoreLogic’s Regional Market Update reporting several areas that experienced the strongest growth now seeing the fastest declines.

The update, which examined 25 of Australia’s largest non-capital city regions, showed that house values in six of the most popular lifestyle markets had fallen by -6 percent or more, with NSW regions such as the Southern Highlands and Shoalhaven recording some of the greatest losses.

However, founder and director of Aus Property Professionals, Lloyd Edge says canny investors can still make money in regional areas if they know where to look, citing Gunnedah in NSW, Highton in Geelong and Sebastapol near Ballarat as areas tipped for growth.

He shares his regional property insights here with Kanebridge News.

What should investors look for in an investment in a regional area, given the post pandemic price drops so many areas have experienced?

I would recommend looking for a 5%+ rental yield, as the extra cashflow will improve your serviceability with lenders. I would also look for a location with multiple growth drivers, as well as Government spending on infrastructure, close to schools, hospitals and so on. A history of growth pre-pandemic is also important, as pretty much all locations experienced growth during the pandemic, but to ensure you’re buying a good long-term investment you need to look for a long history of growth in the area.

It’s also important to ensure you’re buying a property below the median house price in that area, and that you understand the demographic you’re buying for. For example, many regional areas are popular with young families who want to live in a house, therefore buying an apartment might not be the best choice of investment.  

Are rental yields performing better in regional markets than capital cities right now?

Yes, in general rental yields in regional markets are performing better than in capital cities right now, especially those regional areas where the median house price is below $500,000. Of course, there are still capital cities like Darwin that are doing very well in terms of rental yields.  

What about rental yields versus capital growth?

After the pandemic property boom, growth in many places has slowed down considerably, and rental yields are performing well in areas where the median house price is still below $500,000. However, this doesn’t mean that you should buy only for rental yields right now. It’s important to always look for a balance between rental yields and capital growth. A high rental yield will improve your serviceability with lenders and help you to keep growing your portfolio, however without capital growth you won’t be able to leverage the equity down the track to keep growing your portfolio and reach your financial goals.  

Why would investors be advised to look beyond the usual regional suspects?

Once a location becomes popular with investors everyone rushes to buy there, causing prices to rise and putting a downwards pressure on rental yields. It’s therefore important to look beyond the usual regional suspects when choosing a place to invest. I would advise staying up to date with the current supply and demand data, so instead of following the trend and buying where everyone else is you can be aware of the next location that is set to see some growth.

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The Australian capital setting a new record for property value falls

Property values have fallen hard and fast in this popular city, but it’s done little to dent pandemic rises

By KANEBRIDGE NEWS
Mon, Jan 30, 2023 2 min

Highest property values, biggest dip the next. That’s the outcome for Australia’s northernmost capital on the east coast, with Brisbane property values recording their largest and fastest decline, data from Corelogic reveals.

The fall comes just seven months after values hit their peak after a population surge driven by the pandemic saw an increase of 43 percent. Home values hit a record high on June 19, 2022 but have since declined 10.9 percent, in parallel with eight consecutive interest rate rises since April last year.

Historically, peak-to-trough declines in Brisbane have lasted 14 months and have ranged from value drops of -2.9 percent to -10.8 percent. While the new record is just -0.1 percent compared with previous figures, that fall came over 21 months between April 2010 and January 2012. The latest decline was a much swifter seven month drop.

CoreLogic head of research Eliza Owen said it is worth putting the Brisbane figures into context with the rest of Australia’s capital cities, as well as considering the significant rise in property values in the Queensland capital over the pandemic.

“Brisbane now stands out as one of two capital city markets with record declines, the other being Hobart,” Ms Owen said. “Sydney continues to have the largest peak-to-trough falls of the capital city markets (currently at -13.8 percent), while peak-to-tough falls remain mild in some cities (such as Perth, where values are down just -1.0 percent from a recent peak in August 2022).” 

“The record fall in Brisbane home values has not made much of a dent in the gains made during the upswing. The fall in the Brisbane daily HVI follows an upswing of 43.5 percent between August 2020 and 19 June 2022, which was the fastest trajectory of rising values on record. This leaves home values across Brisbane 27.9 percent higher than at the previous trough in August 2020.” 

The median dwelling value in Brisbane jumped from $506,553 at the start of the pandemic in March 2020 to $707,658 by the end of last year, Ms Owen said.

“Despite the large decline from peak, Brisbane maintains the third highest gain in value of the capital cities since the start of the pandemic,” she said. 

“Only Adelaide and Darwin, which are 42.8 percent and 29.6 percent higher respectively than at the onset of the pandemic, have performed stronger. 

“For this reason, there is marginal risk of negative equity for Brisbane homeowners, with the exception of very recent buyers, who purchased around the peak in June 2022 with less than a 20 percent deposit.” 

However, there are signs of resilience in the market. Brisbane remains a more affordable option compared with the other east coast capitals, Ms Owen said.

Although housing values remain higher than pre-COVID levels, Brisbane retains a lower price point than Sydney, with a $435,170 difference in median house values and $280,749 difference in median unit values,” she said. 

“The gap between Brisbane and Melbourne housing values is also significant, with a $119,697 gap between median house values and $97,692 difference in median unit values.

“This could encourage ongoing housing demand from those willing to migrate to the state, or own an interstate investment.” 

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