Investor nuggets to be found in tarnished regional Victoria property market
Regional Victoria's property market made large gains during the pandemic but has since come back to earth, yet there are still hotspots worthy of investor attention.
You know a region’s property market is underperforming when only five of the top ten towns have recorded positive growth over the past quarter.
Such is the current quagmire that regional Victorian property owners find with their home or investment purchase.
Over the past few months, Victorian locations outside Melbourne have seen house values ease by 1.3 per cent, and units take an even bigger hit by tanking 2.4 per cent in three months.
Of some comfort to those who bought pre-Covid, regional Victoria sits a still-impressive 30.8 per cent higher than at the commencement of the pandemic. But those gains are being gradually erased, however, and the regional market is 8.4 per cent below the prior peak of May 2022.
This dwelling value retreat contradicts the overall national regional market, which is now broadly in line with the combined capital cities, with a quarterly rise of 1.0 per cent and capital dwelling growth rate of 1.1 per cent over the September quarter.
Beyond interest rate sensitivity that affects most national property markets, the Victorian economy shows signs of recession, and property owners are dealing with the country’s highest property taxes. While strong migration continues to provide some support, the market needs broader economic improvement to regain momentum.
It’s not, however, all doom and gloom.
Shepparton, Mildura and Wangaratta have recorded reasonable quarterly growth and affordability is luring more first home buyers.
Miriam Sandkuhler, CEO, Property Mavens, said she is seeing a revival of interest in Victorian regional centres, including some quite small hamlets.
She attributed this to a jump in first home buyers Victoria-wide that is benefitting major centres outside of Melbourne, namely Geelong, Mornington Peninsula, Ballarat and Bendigo, and a revival of interest amongst investors attracted to relatively high rental yields and affordability.
For instance, the median house price of Ballarat is $550,000, Geelong $726,000 compared to Melbourne at $940,000.
“This interest has been masked by the exodus of other investors.
“The extension or increase of land tax payable for non-owner-occupied properties is encouraging retired landlords with low to moderate incomes to cash in and sell long held properties,” Ms Sandkuhler said.
“This ‘masking event’ is transitional and the market will return to a more balanced state, which appears to be starting now.”
NAB’s recent property market update for regional Victoria indicates a milder outcome for housing values with the growth trend impacted primarily by the current level of supply of stock and muted demand, providing more options for purchasers.
“The main drivers for dwelling values in the regional Victoria property market remain primarily the well-publicised housing undersupply, the future timing of interest rates cuts, inflation levels and concerns surrounding affordability,” the report noted.
“Positive tailwinds for the regional Victoria market include steady interstate migration, rental market growth through a rise in median rents and rental yields and record low vacancy levels.”
But the positivity ebbed away when it came to a forecast.
“The regional Victoria housing market will continue to remain subdued due primarily to the increase in levels of supply and muted demand.
“Support for the regional Victorian market includes cost-of-living relief measures in the form of energy bill rebates and the highly anticipated Stage 3 tax cuts that came into effect on 1 July, as well as interest rate cuts expected by early next year.”
Potential regional Victorian hotspots
Market movements remain mixed across all quartiles in the regional Victoria market, with the mid-price quartile recording a 0.5 per cent rise in dwelling value for the quarter. The high-price and lower price quartiles both recorded moderate declines of 1.6 per cent and 1.4 per cent respectively over the quarter.
Belle Property and Hockingstuart Head of Victoria, Anthony Webb, revealed the five often overlooked coastal towns he believed unlocked the best opportunities for buyers seeking a beachside escape.
Based on analysis of the lifestyle and commutability of the state’s coastal locations, he assessed the results in concert with median house prices to uncover the lesser-known towns buyers should consider.
Rosebud, Portarlington, San Remo, Lakes Entrance, and Apollo Bay all made the list.
Ranking first was Rosebud for its premium lifestyle offerings, proximity to Melbourne’s CBD, and relatively low median house price of $765,000.
“Many factors make a suburb appealing to buyers, and Rosebud delivers on all fronts. From quality beach access to family-friendly recreation space and fantastic dining options, there isn’t much not to like about Rosebud,” he said.
Competing with Rosebud for the lowest median house price was Lakes Entrance, which has a median house price of just $545,000. On the other side of the heads, Portarlington ranked second, providing replicable lifestyle offerings to nearby suburbs, such as Point Lonsdale, at a discount of more than a quarter of a million dollars.
San Remo, the gateway to Phillip Island, scored highly based on its recreation spaces, family activity centres, walking tracks, and access to front and back beaches. Further afield, Lakes Entrance and Apollo Bay came in fourth and fifth, respectively, both offering surf lifesaving clubs and nearby golf courses.
Ms Sandkuhler said some investor interest is coming from interstate, especially from New South Wales.
“These buyers, like most others interested in Victorian regions, share the conclusion that Victoria looks affordable and the state most likely to benefit from any interest rate cuts in the year ahead.
“Victorian regions look affordable against NSW regions even if the centres are not quite comparable with, for example, Newcastle’s median house price being $867,500 compared to Ballarat’s $550,000.”
It is the perception of affordability combined with good rental yields that are proving the most alluring aspects for investors.
“We are seeing some investors fly down, visit a centre like Ballarat and purchase within a weekend and also seeing some recently qualified advisers pushing buyers into properties at prices around $50,000 above their real market value.
“Our analysis shows Geelong, Mornington Peninsula, Ballarat and Bendigo have the best opportunities – but our on the ground assessments show there’s a lot of C-grade properties on the market this year.
“Shepparton and Mildura have had a good year but we don’t feel they will benefit most from a fall in interest rates.”
Rents still on the rise
Median house rents in regional Victoria have increased by 7.0 per cent annually (reaching a median rental of $487/per week), while unit rents have grown 7.4 per cent over the same period (median rental of $390/per week).
With regional Victoria recording a gross annual rental yield of 4.2 per cent and rents for regional Victoria (all dwellings) having increased by 7.0 per cent over the last 12 months, the outlook for investors in this regard is a positive one, if not for renters.
The average rental household in regional Victoria is now paying 28 per cent of the gross income of $84,203 if renting at the median rate. Renting in the region is now classed as ‘moderately unaffordable’.
Jennifer Beveridge, CEO, Tenants Victoria, said that while the Surf Coast and Geelong regions experienced some of the largest decreases in affordability between 2020 and 2021, Ocean Grove and Torquay are now considered ‘Severely Unaffordable’ to the average regional Victorian household.
“Coastal towns are among the least affordable regions in the state,” she said.
“Renters tell Tenants Victoria’s frontline services that housing affordability remains a huge concern and continue to report steep rent hikes to us.
“Indeed, our services can’t meet the heavy demand from renters on low to middle incomes who seek our help.”
SGS Economics and Planning Principal Ellen Witte said the situation for renters was critical enough to warrant government intervention.
“The rental market in Victoria is spiralling and what was once affordable is slipping out of reach for many.
“Households are being forced to live further away from their jobs to access affordable rents, causing fatigue and other issues in workers.”
“This is a severe problem which needs to be addressed by the government with an expansion in social and affordable housing, before we have more people on the streets. Both state and federal governments need to provide urgent intervention.
“After reaching a peak during the pandemic, most regional areas in Victoria have seen a decline in affordability and people on low incomes are suffering the most.”
