As property price falls accelerate in Sydney and Melbourne, some investors might be tempted to pivot into the regions.
In terms of dollars and cents, it can certainly look attractive, property market analyst and principal of Suburbanite Anna Porter told Your Money Live.
“It’s affordable. That’s the first thing that most people come to tell me,” Porter said. “Some areas down near the Riverina for example, the median house price is about $160,000.”
Likewise, regional property tends to have better cash flow opportunities.
“By way of example, in Sydney and Melbourne, you might be getting a 2.5 or 3 per cent gross rental yield. Take that kind of money to the country and you can typically see 5, 6 or even 7 per cent,” Porter explained.
However, that’s not to say that there aren’t drawbacks as well.
“Sometimes we like to remind [clients] that cheap to buy can be cheap to sell,” Porter said.
“When you go into regional hubs it can be 200 to 300 days- we’re talking almost a year- to sell an investment property,” she added.
Combine that with longer vacancy periods, higher rental arrears and softer capital growth and your return on investment can be easily derailed if you pick the wrong house in the wrong area.
So what do you need to ensure an investment property in the regions will succeed?
One of the biggest factors contributing to the success of residential property, according to Porter, is its proximity to employment.
“When you’re getting more than 45 minutes or an hour away from employment opportunities, that’s what I’d be really steering clear of,” she said.
Equally, you need to be conscious of the security of employers in the area.
“In the early ’90s in the Southern Highlands of New South Wales, a fairly popular commercial hub, an abattoir closed down and the bump on effect [hit] the farming industry, the butchers, the local supermarkets,” Porter explained.
“There is this huge flow down the chain and when all those people lose their jobs it can have a really big impact.”
Again, that can lengthen vacancy periods and in the worst case, dry up the pool of potential tenants entirely.
By extension, don’t expect the arrival of a single large employer to set a small regional market on fire.
Porter discussed a proposed Ferrero Rocher expansion into Coleambally, a small town in south-west NSW.
“They might put one factory to do some manufacturing but is that going to change the nature of that market? Probably not.”
In fact, regional property doesn’t have to mean remote property.
For example, Geelong (perhaps controversially) can be classified as regional despite being a little more than an hour outside of Melbourne.
That proximity has no doubt guaranteed much of the returns investors have enjoyed there.
Meanwhile, hubs like Goulburn and Wagga Wagga have managed to perform due to steady local economies, and strong populations.
All valuable commodities when it comes to regional (or not so regional) property markets.
Watch the full segment above for more.