The steps to take, places to look when buying regional

Regional house price growth has been exceptionally strong over the past year, but knowing how to capitalise on this market and where to look as a prospective buyer is not always easy.

As many Australians have embarked on a tree or sea-change over the course of the pandemic, price growth in regional areas has outpaced that of the nation's capital cities.

Data from CoreLogic showed median dwelling prices in combined regional markets rose by 23.1 per cent to reach $503,609 in the year to the end of September, compared to a 19.5 per cent 12 month gain in capital cities.

Leading the pack of regional markets was New South Wales with a median dwelling value of $630,900, which is higher than median prices in Darwin, Perth, Adelaide and Brisbane.

In Victoria, figures released this week by the Real Estate Institute of Victoria (REIV) revealed that median house prices in Geelong and its suburb Newtown, and City of Ballarat’s Lake Wendouree, had reached $1 million for the first time.

Newly-elected REIV president Adam Docking said a confluence of important events was making regional Victoria more appealing to Victorians.
 
“The trend in tree or sea change investment and relocation continues with flexible and hybrid workplace arrangements and lockdowns attracting more people to a regional lifestyle,” he said.

“A late start, due to lockdowns, to the typically busy spring selling season means momentum should continue through to Christmas, and a return to in-person inspections is giving buyers and sellers more confidence to transact.”

Experts’ tips

There has been “a tsunami of people flooding regional towns” since the pandemic started, according to Bobby Haeri, co-director of The Investors Agency, but that doesn't necessarily guarantee investment sucess.

“The influx has been from people who are now able to work remotely and many investors have jumped on board to try and capitalise off this migration by snapping up regional properties,” Mr Haeri said.

“We’re noticing one major problem, however, that could see some regional property prices plummeting by up to 40 per cent as cities begin to reopen.”

When it comes to looking for regional property investments, Mr Haeri said it was crucial that investors looked for economic diversity in the towns they’re purchasing in. 

“With Sydney CBD losing $250 million each week, we’re predicting the government will create incentives to businesses to encourage workers back into the CBD and over the next few years many businesses will incentivise staff back into the office,” he said. 

“If this does happen, remote and isolated towns that do not have their own industries driving the economies and don’t have the correct infrastructure and amenities will lose large amounts of population and this is when you see significant drops in house prices.”

Mr Haeri’s top tips when purchasing a regional investment property: 

• Look for towns with economic diversity. Economic diversity provides security to investors. You want to look for towns that have a diverse range of employers, so if one industry is affected you won’t see a mass exodus of the population.
• Infrastructure is key. Look for towns that either have solid infrastructure in place already, or that the government has announced investments in the near future. This can cover transport, utilities, and schools, hospitals etc.
• Take into account the cost of running and managing large properties. Think about all of the out-of-the-box expenses that will dip into your profits when purchasing regional. We see many investors underestimate the costs of running and managing large rural properties, which can impact their profits down the track.

NDIS Loan Experts and SMSF Loan Experts managing director Yannick Ieko said regional Australia offered significant investor opportunity despite the recent price rises, but said buyers needed to do their homework and follow some essential guidelines:

• focus on amenities (shops, eateries, doctors, entertainment etc)
• place less focus on public transport as people expect to drive in regional locations
• place an emphasis on land content (i.e., free standing houses, bigger blocks) to maximise value for money and increase range of uses for the property
• from a finance perspective, ensure your lender will lend in the area you are considering. The more remote, the greater the risk they don’t or that they will limit the all-important loan to value ratio (LVR).

What’s hot?

Property analysis firm CoreLogic released new data this week, showing capital cities had underperformed compared to the regions in the past year.

“Sea change and tree change is driving these regional markets due to the working from home trend inspired by lockdowns across the country," CoreLogic head of research Tim Lawless said.

Some of these suburbs’ massive growth rates were attributed to either the lifestyle or coastal appeal in the area.

The top five spots were taken by NSW, with Sydney’s prestigious Northern Beaches taking out the number one ranking.

But as the stock market disclaimer goes, past performance is no guarantee of future results.

With an eye on future prospects, the Property Investment Professionals of Australia's latest survey named Queensland as the number one property investment location over the next year, with regional areas prolific in their list.

And new research indicates that Queensland's robust market conditions and record sale prices aren’t going anywhere any time soon.

The total number of property listings on the Sunshine Coast has fallen a further 37 per cent over the year to September, with asking prices up more than 17 per cent as a result.

For investors looking for a new angle, Mr Ieko said demand for National Disability Insurance Scheme (NDIS) properties in regional areas was particularly high, with some locations seeing slim or no supply coming online.

“It is an amazing opportunity for yield hunters as the low land prices mean that NDIS packages can be put together for much cheaper while still capturing very high payments from the government,” Mr Ieko said.

As for other regional hotspots, he said it’s all about affordable lifestyle locations, with the Fleurieu Peninsula’s wine region south of Adelaide exemplifying the sort of area set for an investor influx.

The Investors Agency co-director Darren Venter said the increased needs for employment in major regional markets such as Salisbury in South Australia and Shepparton in Victoria, are resulting in further tightening of vacancy rates. 

“These areas also attracted desirable living conditions with an abundance of amenity support and family lifestyle characteristics,” he said.

“Both areas have pockets of strong gentrification, but also parts that have not yet developed in the same way. 

“These varying attributes support competition in the markets, and we can expect to see flanking markets begin to rise too as hubs become too expensive to buy into.”

In Western Australia, regional markets have boomed despite Perth being largely unaffected by the pandemic and any subsequent flight from the city.

Price growth across regional WA outperformed the Perth region for annual growth in the year to September 2021.

REIWA data released this week showed all nine regional centres recorded price growth in the year to September 2021.

Port Hedland was the stand-out regional performer over the last 12 months, with its median house sale price increasing 54.7 per cent. 

Other regional centres to record strong annual price growth were Geraldton (up 25.5 per cent), Broome (22.2 per cent) and Esperance (17.4 per cent).