Regional property markets have experienced a record run over the past few years as tens of thousands of people looked to escape the city, while others decided to fast track a sea or tree change. In March and April of 2022, the regional markets proved to be high performing.
As a result, values have risen rapidly, while rental markets have also become extremely tight. While it’s been a great time to buy a regional property in recent years, are they really worth it or have they been a bit too hyped up?
Here are some pros and cons of investing in regional property.
One of the biggest appeals of investing in regional areas is the relatively high yields that are on offer. Higher yields mean that there are more properties that will potentially be positively geared. In contrast, many of the inner city areas around Australia are heavily negatively geared meaning you’ll need to contribute to the repayments and cost of holding the property.
In recent years, regional markets have outpaced their city counterparts in many locations, particularly around South East Queensland, and locations like Hobart having seen substantial capital growth. While capital city markets have been seeing some price declines in the past 6 months, many regional areas are still holding steady.
Tight rental markets
The vacancy rate in regional areas is currently very low which means there are more people looking for properties than there are homes available. This is likely to continue to put upward pressure on rents in the short term which is advantageous for investors.
When people talk about investing in regional markets, it’s important to note that there are some very big differences between regional areas. Some regional areas include small cities that have populations of 100,000 people, while at the other end of the spectrum, there are small towns with less than 100.
There are also regional areas that have strong, and diverse economies that allow them to offer good employment opportunities during different economic conditions. While at the other end of the scale, there are mining towns that offer high yields but a heavily correlated to the commodity cycle and typically experience large booms and busts.
Over the long term, regional areas are often more likely to experience vacancy risk. Given the lack of employment opportunities in many small areas, it’s important that you take into account the risk of not being able to find high-quality tenants. Similarly, many regional locations are very dependent on tourism and the population is often very transient, meaning you might not be able to secure long-term tenants easily. To decrease the likelihood of vacancy in your current property, here are our top 10 tips!
While natural disasters can occur anywhere, in recent years there have been a number of severe floods and bushfires in regional areas. This is likely to drive insurance premiums up and is always a concern for the local communities.
Overall, like anything in property, there is no one “regional property market”. All towns and areas are very different and are driven by different economic factors and have unique types of people that live there.
When you’re thinking about investing in regional areas, it’s very important to do your research on the current supply and demand trends and the economic outlook. While regional property has been a strong performer in recent years, there have also been long periods of time where many regional areas have seen modest growth and struggled, particularly in the mining states and locations that are dependent on certain industries.
However, there are locations that offer a combination of high yields and growth potential which make it a prime candidate for investors looking to acquire multiple properties.