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
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.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Philip Lowe’s comments come amid property industry concerns about pressures on mortgage holders and rising rents
2 min
Leaders in Australia’s property industry are calling on the RBA to hit the pause button on further interest rate rises following yesterday’s announcement to raise the cash rate to 4.1 percent.
CEO of the REINSW, Tim McKibbin, said it was time to let the 12 interest rate rises since May last year take effect.
“The REINSW would like to see the RBA hit pause and allow the 12 rate rises to date work their way through the economy. Property prices have rebounded because of supply and demand. I think that will continue with the rate rise,” said Mr McKibbin.
The Real Estate Institute of Australia today released its Housing Affordability Report for the March 2023 quarter which showed that in NSW, the proportion of family income required to meet the average loan repayments has risen to 55 percent, up from 44.5 percent a year ago.
Chief economist at Ray White, Nerida Conisbee, said while this latest increase would probably not push Australia into a recession, it had major implications for the housing market and the needs of ordinary Australians.
“As more countries head into recession, at this point, it does look like the RBA’s “narrow path” will get us through while taming inflation,” she said.
“In the meantime however, it is creating a headache for renters, buyers and new housing supply that is going to take many years to resolve.
“And every interest rate rise is extending that pain.”
In a speech to guests at Morgan Stanley’s Australia Summit released today, Governor Philip Lowe addressed the RBA board’s ‘narrow path’ approach, navigating continued economic growth while pushing inflation from its current level of 6.8 percent down to a more acceptable level of 2 to 3 percent.
“It is still possible to navigate this path and our ambition is to do so,” Mr Lowe said. “But it is a narrow path and likely to be a bumpy one, with risks on both sides.”
However, he said the alternative is persistent high inflation, which would do the national economy more damage in the longer term.
“If inflation stays high for too long, it will become ingrained in people’s expectations and high inflation will then be self-perpetuating,” he said. “As the historical experiences shows, the inevitable result of this would be even higher interest rates and, at some point, a larger increase in unemployment to get rid of the ingrained inflation.
“The Board’s priority is to do what it can to avoid this.”
While acknowledging that another rate rise would adversely affect many households, Mr Lowe said it was unavoidable if inflation was to be tamed.
“It is certainly true that if the Board had not lifted interest rates as it has done, some households would have avoided, for a short period, the financial pressures that come with higher mortgage rates,” he said.
“But this short-term gain would have been at a much higher medium-term cost. If we had not tightened monetary policy, the cost of living would be higher for longer. This would hurt all Australians and the functioning of our economy and would ultimately require even higher interest rates to bring inflation back down.
“So, as difficult as it is, the rise in interest rates is necessary to bring inflation back to target in a reasonable timeframe.”
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
