Novice investors warned on regional property value spike

Research released from CoreLogic last week showed that the value of properties in regional Australia has grown at double the pace of capital cities in the last 12 months.

The regional housing market surged by 13 per cent in the past year, in contrast to the capital city rate of 6.4 per cent.

Demand has also been reflected in realestate.com.au active property listings. In regional Australia, they were also the lowest they’d been in five years in April, REA Group data showed, with a 5.1 per cent decline over the month.

However, Adviseable property buyer Kate Hill commented that the results may send the wrong message to first-time property investors, that every regional location is a guaranteed investment winner.

“We have been investing in major regional locations for years and, conversely, have been giving other rural and remote locations a wide berth for a long time, too, including right now,” Ms Hill said.

“Clearly, pent-up demand and a number of other factors, including record-low interest rates, are motivating more investors to buy into markets near and far, but the fundamentals must stack up over the long term as a strategic investment location.”

She added that while there had been a wave of people moving away from cities, only time will tell if the trend will become permanent.

“Some investors might be considering these short-term migration patterns, as well as the current robust price growth, as justification for buying into regional areas,” she said.

“But, in a year or two, they may be left with an investment property in a location where many of the new residents have already reversed their decision-making and gone back to the city. Plus, they may have bought into an area where the local economy was always reliant on one industry, such as tourism and mining, which is not akin to significant nor sustainable capital growth over the years ahead.”

Some major regional locations, such as Ballarat, Bendigo and Geelong, were tipped to have had strong property markets long before the pandemic, whereas others had struggled due to remote locations and relying on a single industry.

“Some of the key fundamentals include having a diverse and vibrant local economy, solid jobs growth, and a variety of industries, such as health, construction, retail and education, to adequately service its local population,” Ms Hill said.

“In regional areas, the local economy must also be self-sufficient, which means most residents should live and work there as well as spend their money there.”

She added that potential investors should complete thorough due diligence on the future prospects of a place rather than basing decisions on short-term fluctuations.

“Just because a place has had a few months of price growth and property prices seem affordable, doesn’t make it a sound investment location,” Ms Hill said.

“By purchasing in an inferior regional or remote location, some investors might find out that the so-called cheap buy-in price becomes a very expensive experience fee with the benefit of hindsight.”

A recent report from the Housing Industry Association has also projected that the number of detached housing commencements will reach a record high of 146,860 in the 12 months to September – a 20.3 per cent rise from the peak of the previous boom in 2018.

The HomeBuilder scheme, record-low interest rates and a shift in population away from inner cities to regional areas were attributed for driving the shift to detached housing, as well as a global trend during COVID-19.

[Related: Home buying intentions jump sharply: CBA]