Should you consider investment in regional areas?
There's never really a bad time to look at getting into the property market, but buying into metropolitan real estate can seem like a daunting prospect given recent housing price trends. For those who are trying to make their start in home ownership or investing, seeing figures like those from SQM Research, which show that Sydney's median house price has passed the $1 million mark, is frightening.
In fact, according to CoreLogic RP Data, the median house price in every Australian capital city is over $500,000, rising 11 per cent in the year to September 2015. Perhaps it's no surprise then that some people are looking to the regional centres for their next property investment.
There are certainly upsides to looking further afield for opportunities in real estate, but for every potential windfall there is a corresponding risk. Let's take a look at some of the ups and downs of investing in regional property markets.
The price is right
It's no secret that the cost of entering the property market in the capital cities is rapidly becoming prohibitive, especially for first home buyers. The Bankwest First Time Buyer Deposit Report 2015 looks at the amount of time needed for an average household to save for a 20 per cent deposit on a new home, showing staggering results – up to 20 years in some cases.
"It's not all doom and gloom – you just need to be willing to make compromises."
The very idea of saving several hundred thousand dollars just for a deposit on a home is enough to send some people running to the hills, however getting the whole picture by casting a wider net shows that it's not all doom and gloom – you just need to be willing to make compromises. Sadly, most first homes aren't going to be in Mosman (16.3 years for a deposit), but considering an area like Broken Hill (1.2 years for a deposit) might be the more achievable entry into the housing market you're looking for.
The value for money outside of the capital cities is also worth considering. Where $600,000 might buy you a one-bedroom unit in Sydney, the same money could net you a two- to three-bedroom house on a quarter acre in a regional centre. It's worth speaking to your buyer's agent to get a feel for just how much bang for your buck is on offer if you're willing to expand your horizons.
Take hold of the dream lifestyle
Despite all the conveniences of metropolitan dwelling, it's still a dream of many people to escape the hustle and bustle of the city for the peace and tranquility of the countryside. Getting away from it all, an idea once seen as a retirement plan more than anything else, is now more than ever a realistic option for people. A 2013 report from social researchers McCrindle found that by 2020, thanks to the completion of the National Broadband Network, the government is aiming to see 12 per cent of all public servants working remotely.
For some people, the idea of rolling out of bed and straight into their home office is something they can attain right now. Mark Wooden, director of the Household, Income and Labour Dynamics in Australia survey at the University of Melbourne, found that the average travel time for Australians to and from work was 54 minutes, and as high as 90 minutes for 19 per cent of the population.
Build your equity
You don't even have to be right out in the back of beyond to achieve a more sedate lifestyle; even regional centres such as Newcastle or Geelong can offer all the amenities of the capital city at a fraction of the housing cost.
"You might be years away from your dream home in Melbourne or Sydney, but within reach of a property in a regional centre."
Just because you have decided to purchase property in a regional area doesn't mean you've resigned yourself to a small-town life. Getting yourself to a point where you can buy a home in the city is an endeavour that can take many years, but you can make that time work for you while also building a portfolio of properties.
You might be years away from your dream home in Melbourne or Sydney, but within reach of a property in a regional centre that can help you get there. As you pay off your regional property mortgage, you can use the accumulated equity to refinance and support your next home loan. Not only are you working towards that ultimate goal, but you are potentially accruing a slate of properties that can continue to work for you far into the future.
It's not all good news
Thinking about retreating from the city to an idyllic lifestyle out in the wilds isn't without its risks. There are any number of regional concerns that have little impact on the property market in the city, a large part of the reason why buying in the metro area is seen as a consistently safe investment. Some considerations you need to take into account when mulling the prospect of buying regionally include:
- Industry-heavy regions. In Australia, obviously a large part of our nation's wealth comes from our underground stockpiles of resources. This can cause havoc on regional property markets, due to the volatile and unpredictable shifts in the industry. An area heavily supported by a nearby iron ore mine might quickly draw in thousands of new residents for a few years, only to have people abandon the area just as rapidly when the market falls or the mine becomes unprofitable. A savvy investor can read the market and know the best time to buy and sell, but it's easy to get caught out and lose a large chunk of your investment.
- Employment figures. Studying the employment figures of a region can offer some valuable insight into future growth. A rising unemployment statistic can be a warning sign for investment, as a lack of job opportunities will see people leaving the area in search of greener pastures before too long. It's also worth paying attention to any upcoming events that might lead to a rising unemployment figure. For example, the QBE Australian Housing Outlook 2015-2018 report finds that the median house price in Geelong saw a moderate fall in 2014/15, following economic setbacks and redundancies in the region.
- Seasonal and tourism regions. While it might seem like a nice idea to own property in a seasonal area, they are fraught with danger for investors. It's all very well to buy a holiday home in the Snowy Mountains with the intention of renting it out to skiers, but all it takes is one bad snow season to set your repayment schedule back severely. In a 2013 interview with Your Investment Property Magazine, Margaret Lomas, chief executive of the Destiny Group, warned against property investing in regions that rely on tourism. "People might think it's a good idea to buy there and then use it later for their personal uses, but it is much better just to buy in area that is going to perform well today".
Expert advice is key when testing the unpredictable waters of regional property. Wherever you are looking at entering the property market, it's worth taking any questions you might have to a professional and experienced buyer's agent.