Why Property Investments In Capital Cities Perform Better Than In Regional Areas
As a property investor means it’s important to be familiar with real estate trends across the country. Interest rates and the economy as a whole can have broad effects across the nation, but local conditions can influence how property investments perform from suburb to suburb and town to town.
Understanding Investment Potential
In June, Minus the Agent pointed out the factors that emphasise the investment potential of regional centres, including Geelong and the Sunshine Coast. These include infrastructure projects and strong migration to these regions, coupled with the relatively low property prices.
Some smaller towns can be talked up big when their economies are tied into booming industries and planned large-scale projects. A lower-cost investment property can be tempting too, but due diligence is required not only on the property – it has to encompass the long term impact of the industry or project on the local housing market.
Regional and rural centres wax and wane with local conditions, such as employment opportunities, infrastructure projects, and population shifts.
Darwin is a case study in point. Almost a decade ago, infrastructure and resource projects created a huge demand for jobs and housing, and property prices rose by over $100,000. Now that the projects have been completed and are in maintenance mode, huge staff numbers are no longer required and the working population has moved on to new, more job-fertile pastures. As a result, house prices have fallen below their 2011 levels.
Mining towns have similar boom-and-bust cycles, making them shaky propositions for investment, which requires sustainable, long term growth drivers.
Sydney, Melbourne and Brisbane remain the major investment markets, but thriving regional areas with strong infrastructure and lifestyle assets – such as Newcastle, NSW – and that aren’t focused on one industry or project also have potential, as do large towns within commuting distance of capital cities.
In the end, country properties may be cheaper, to begin with, but their potential to grow as an investment is a lot more fickle. Analyst John Lindeman reported in late 2018 that country properties’ rate of growth is around 2% less than the capital city housing market, on average, making them a less attractive prospect for the long term investor.