REGION OF BOOM

Tim McIntyre on what to consider when investing in regional areas

RISING property values across Australian capital cities have prompted more people to explore regional locations as places to invest.

Realestate.com.au research shows larger regions and cities across Australia’s eastern states have been of particular interest to investors, with Toowoomba performing strongly in Queensland online searches; Newcastle and the Central

Coast on top in NSW; and Geelong and

Werribee the most popular in Victoria.

Most successful property investing focuses on capital growth potential and rental yield, but realestate.com.au economist Paul Ryan said this can be harder to pin down when going bush.

“Regional investing is less cookie cutter than in cities,” Mr Ryan said. “In cities, you’re looking at yield, relative prices, proximity to schools and hospitals. With regions, there’s diversity, with mining towns, university towns, manufacturing hubs and so on.”

When choosing a place to invest, two key factors are diversity of economy and a growing population.

“Towns should be big enough to support multiple industries to guard against sectoral downturns,” Mr Ryan said, adding Covid-19 had caused more population flow to regions.

“Remote work means middle-tier cities may grow more than in the past.

“More people have the option to relocate there for lifestyle reasons and that is likely to have a positive effect on values.

“Vacancy rates have fallen and rents have risen because people with city money can relocate to these areas and continue working in their jobs.”

However, he said Covid-related trends might not be permanent; Australia’s vaccination rate was increasing and people might eventually return to cities for work.

“If you pick a region with its own employment demand, you’re less likely to lose money if trends don’t continue,” Mr Ryan said.

He said city markets that had been struggling could easily bounce back.

“Migrants are a strong source of rental demand and they usually rent in metro areas, so this time next year, if migration comes back, there may be some opportunities in more traditional inner-city markets,” he said.

HOUSE OF THE RISING RETURNS

Buyer’s agent Dan Grantham, of Oasis Skeen, said his city-based clients were attracted to the fact they could buy a house in a region, rather than a unit.

“Clients now are faced with the dilemma of buying a (metro) apartment versus a house in a regional area and I am seeing more benefits in the house option,” Mr Grantham said. “Over the life of an investment, land value is what increases. If you get a dual income home close to amenities and infrastructure, you cover both yield and capital growth.”

He said the Albury-Wodonga hub on Victoria’s border with NSW was an example.

“There are a number of infrastructure projects under way, bringing more people and growth,” he said. “In that area you can find large blocks for under $500,000 with the ability to subdivide and add further value while returning a 6 per cent yield.”

USING THAT EQUITY

Mr Grantham said supercharged house values had left many owners in capital cities with usable equity in their home.

And while interest rates remain historically low, people want to put that to use buying assets with an upside for value growth and rental return.

“Many are using equity to finance their purchase and are confident their investment return will be far superior to interest rates, regardless of if rates rise in the coming years,” Mr Grantham said.

To unlock equity, the first step is to talk to a mortgage broker or your lender for a valuation, according to Azura Financial mortgage broker Carl Elsass.

“Once valued, your home mortgage can be refinanced up to the desired amount required to put towards the new property,” Mr Elsass said. “The two most important things here are your borrowing capacity and LVR. If the loan to value ratio on your existing property exceeds 80 per cent, you’ll be liable for lenders’ mortgage insurance. Additionally, increasing the loan of your owner-occupied property will reduce what you can borrow for the investment purchase.”