31 Jan It pays to keep an open mind to investing in regional locations
By Propertyology Head of Research, Simon Pressley
There’s a deep-seeded, widely-held, and completely misguided opinion among property commentators that successful investors only buy in capital cities.
These people argue regional investing is a mug’s game and the weight of population in capitals is the only guaranteed way to profit from real estate. Gee, I wonder how they explain their way out of the fact that, over the decade ending December 2017, dwelling prices in Brisbane (Australia’s third largest city) only increased by 10 per cent while they declined by 6.9 per cent in Perth (our fourth largest city).
To me, this sort of narrow-minded thinking demonstrates an ignorance of how our national economy operates. That’s a shame because the opportunities for investing in this incredibly diverse country are significant when the blinkers are removed.
To be clear though, I consider it unwise for anyone to invest in anything that they don’t properly understand. But, I’d argue that an extremely high proportion of Australians don’t properly understand the property market fundamentals of their own city. It’s just that they’re ‘comfortable’ with the perception that they have.
Propertyology always considers the investment fundamentals of (both) capital cities and regional locations on their merits.
To anyone that makes broad-brush statements directing investors to steer clear of regional Australia, I’d say, “Show me the evidence!”
I’ve actually run the numbers myself; not just a few conveniently-chosen numbers of one-industry mining towns. I mean ALL of the numbers – the property markets of every single one of Australia’s 550 city councils across our 8 states and territories for the 15 years since the turn of the century.
The property markets of different towns and cities across Australia are always doing different things at different times. And, the historical evidence is clear: every location ~ capitals and non-capitals ~ have had boom years, bad years, and plenty of ‘normal’ years. But, over the course of time, Australia’s best-performed property markets were located in parts of regional Australia.
The numbers in this chart illustrates the change in median house price of Australia’s 20 biggest cities (12 of which are regional locations) in two blocks of 5-year snapshots. Look closely!
“I wouldn’t want to live there”
One of the primary mistakes made by capital city-centric buyers is they can’t imagine owning property where they wouldn’t choose to live.
It’s a thought process largely driven by emotion (and ignorance) and that’s likely to cost them hundreds of thousands of dollars in lost opportunity.
Where a property investor chooses to live is as irrelevant as which financial institution a share investor chooses to bank with. What is important is that property investors have a broad appreciation as to where (and why) others want to live elsewhere, now and in to the future.
While some big city residents believe little exists beyond their borders, thousands of regional residents can think of nothing worse than being stuck in a capital’s concrete maze consumed by the stresses that accompany an urban lifestyle.
In fact, nearly nine million people call regional Australia home. With a third of our country’s population existing happily outside of cities, why would you ignore the prospects?
Regional Australia provides some of the world’s most idyllic lifestyles. In most cases, housing is very affordable and all of the essential infrastructure is there. They are like mini capital cities. The outlook for a number of these locations remains extraordinarily bright.
“There’s no work in regionals cities”
Again – this is a falsehood promoted by those who haven’t bothered to complete the research. It’s not as if those 9 million residents already living outside of our 8 capital cities line up at Centrelink every fortnight to collect their welfare check.
As recently as March this year, I personally invested in one such location because I believe its property market outlook is superior to every capital city. I say that as a professional who studies property markets nationally every day.
There are significant numbers of regional centres whose rates of job growth are exceeding the 2-year national average.
These non-capital city locations are riding the back of a strengthening outlook in tourism, agriculture, advanced manufacturing, infrastructure projects, and a partial rebound of the mining sector.
Jobs growth in regional communities raises everyone’s economic status. Job growth increases the local wages and attracts new people to town. It boosts the confidence of residents as they graduate beyond renting and into home ownership, or provides the impetus for renovations and upgrades.
Jobs growth also brings in new residents and many of these will be renters looking to ‘try before they buy’.
“Regional property hot spots just don’t exist”
I’d strongly argue otherwise and suggest you don’t know about regional growth zones because they’re under-reported by the media.
Propertyology’s research shows growth in international and domestic tourism is creating jobs in locations such as Cairns (tropical wonderland), Dubbo (western plains zoo), Orange and Armidale (foodie experiences), Bendigo and Ballarat (our gold rush heritage), and regional Tasmania (because, well, it is God’s country).
Agriculture has always been the backbone of the Aussie economy, and the rise of the middle-class in China as well as other Asian nations is helping fuel demand for our high-quality produce. We are Asia’s food bowl and the regions will thrive further as tangible benefits of multiple Free Trade Agreements are realised.
New manufacturing jobs in the food industry are also being created by processing businesses such as abattoirs, cheese factories, and wine making.
“I can’t make decent money out of cheap property”
It often surprises people to learn that, dollar-for-dollar, the total return on property investment since the turn of the century was higher in numerous regional locations than capital city markets.
And it’s wrong to believe you have to spend big money to make more gains. The opposite is true – a prerequisite of ‘demand’ is ‘affordability’.
For the price of a single home in Sydney, Propertyology has already helped numerous clients to buy three holdings in different regional locations with a lower annual cash flow impact and stronger growth prospects.
This diversity of a property portfolio like this also helps mitigate risks around vacancies and unexpected economic downturns – capital cities such as Brisbane, Perth and Darwin serve as a recent reminder that no location is immune to downturns!
Could you imagine a share investor plonking $1 million in ONE solitary stock? Why then are property investors so keen to do that with property?
Wherever we help our clients invest, a typical 3-bedroom house costs between $250,000 and $450,000.
As you can see – smaller fish are sweeter!
If you’ve restricted your investing to capital cities – or worse still, just your own capital city – then you’re doing your future self a disservice. Put aside your investment bias and open your eyes to the possibilities – the numbers don’t lie.
Regional Australia is full of opportunities to grow a compelling, profitable property portfolio. Step One requires an open mind!
Propertyology is a multi-award-winning buyers agency and (national) property market research firm. To find out how we can help you buy the right property, in the right location, at the right price contact us on 1300 65 40 70 or email here.