As housing markets in regional Australia have increasingly turned negative, people have become reluctant to invest in areas outside the metropolitan capitals. But there are good property investments further afield; it’s just a matter of knowing what to look for.
Historically, investment in regional Australia has occurred either with increases in local population or strong economic cycles, such as the last mining boom, where house prices in Karratha in WA increased by a staggering 1000%. Of course, they’ve now reduced by 500%, bringing them back to pre-boom parity.
In regional Australia, you are investing for income. Perhaps that was the mistake of the last boom that people were investing for capital appreciation of investment.
If you’re serious about investing, the first step is to understand that each of the regional areas have got different fundamentals, and by that, we mean different industries and different economic structures. For example, take Gladstone and Karratha, both mining towns, but with very different characters. Gladstone is a port and actually an origin for a lot of workers who live there and work out, whereas Karratha is a destination.
Once you understand the unique nature of the town, the next thing to look at is how much property has been developed there; is it overbuilt or is the housing stock starting to dry up.
Then comes the ultimate test of investability. The big question to ask is; has the purchase price of the dwelling gone below replacement cost? In other words, is it cheaper to buy the existing home than to purchase a block of land in the area and build a similar home from scratch? Because there can be very good buying in locations where you can’t actually replace the home for the seller’s asking price.
You’ll have to do your research on how far prices have come off. It’s not always clear just by looking in real estate windows. There will undoubtedly be a number of properties that aren’t listed for sale but which people may be interested in selling if they could. However, the agents don’t want to show that the market has absolutely fallen to pieces by putting all those homes on display.
You need to check whether there are mortgagee auctions or if there are bank sales. Talk to local agents about people who might need to exit quickly out of projects or properties.
Now obtaining an inexpensive property is a good start, but you need to be able to rent it out for a reasonable return. What would be the minimum rent achievable on the property you plan to buy? That’s a relatively easy to find out. It’s just a matter of looking at what the current minimum rents are in the area. People can always trade down to the minimum so you need to ascertain where your rent price is in relation to the minimum that people are paying.
We mentioned earlier that you have to know the major industry driving the particular area you’re interested in, but you also want to know about its longevity. Well, to do that, you only need to look at company annual reports to see where they are investing to achieve their long-term objectives. For example, if you are in iron ore territory, what are Rio Tinto and BHP Billiton reporting to shareholders on their future planning?
State government investment also indicates future growth plans for an area. The building of infrastructure such as hospitals and leisure facilities supports the existing population and attracts new residents and businesses.
We can’t emphasize enough that there is no one ‘regional Australia’ and if you are investing, you need to break the country up into its component parts. The areas you might look at in NSW, where agriculture has improved dramatically making those regions attractive options. These are not what you would look at in Victoria, where the key regional property potential is in places which are virtually suburbs of Melbourne, such as Ballarat and Geelong. And here’s a pick: Ararat, just 80km past Ballarat via dual lane highway, has a good rail link to Melbourne, the latest shopping centres, and houses for under $200,000. You can’t build a house and land for that kind of money!
About the author:
Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or email@example.com.