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10 good reasons not to invest in regional Australia

I have always suggested that investors seeking to create long term wealth from property should never look far beyond our major capital cities. That’s not because I have anything against rural Australia – there are some lovely spots to visit in our vast nation – but I wouldn’t invest my money there!

And recent information from RPData confirms that my bias toward inner city real estate is based on cold, hard evidence.

Slow Population Growth

Population growth and key property figures from the ABS and RP Data reveals that the 10 most populous regional local government areas around Australia have largely shown weak housing market activity and slowing population growth for the 12 months to July 2011.

And before I start fielding comments from readers who recognise that this has been the general trend for many of our housing markets in recent times, it’s important to note that this combined population and price slowdown has been far more pronounced in these particular regional centres.

Slow Population Growth

As you can see in the table above, most of the large regional centres listed (with the exception of Woollongong and Newcastle where escalating house prices in Sydney are forcing residents further afield), have experienced a slowdown in population growth for the 2009-10 financial year when compared to much of the previous recorded years from 2001-02.

The RP Data report says that a marked slowdown in the sea and tree change phenomena from the beginning of this century, combined with sluggish tourism and retail sentiment, have translated into a weakening labour demand for many of these coastal locations.

As a result, people have started moving away to find employment closer to nearby cities and less newcomers to Australia are prepared to move to these locations.

Not surprisingly, where population growth stalls, so too does the local property market, with all ten regions experiencing a decline in median detached house prices over 2010-11.

Key property data

At one end of the scale, Townsville saw median house prices fall by -14.3% for the period, followed by Sunshine Coast (-8.2%) and Gold Coast (-6.5%). While at the other end, Greater Geelong, Wollongong and Newcastle have not fared quite as bad with falls of -0.7%, -1.0% -1.6% respectively.

Units Performing Better

Interestingly, the unit markets in half of these regional centres recorded median price growth over the most recent 12 months, with Geelong units increasing the most at 7.3%, while Cairns recorded a staggering loss of -14.8% and Townsville and the Sunshine Coast fared only marginally better with median unit prices sliding by -10.2% and -7.8% respectively.

Then there are other important indicators as to the health of these property markets, being time on market and average vendor discount; both of which have risen in all 10 regions for units as well as houses and go a long way in explaining the general recorded price falls.

While clearly I don’t see any of our property markets experiencing significant price growth over the next year, I would have to suggest that this type of data simply confirms my thoughts on how critical location is to a good, long term property investment.

Price is what you pay, value is what you get

While some of the cheaper property in regional centres might be enticing, it’s not always as good as it looks and this type of report just proves my point. I have always avoided these areas due to their heavy reliance on one or two industries to sustain the local economies and populations and as it’s plain to see here, when those industries take a battering it’s not long before local house prices start to bear the brunt.

And while those who chase rental yields over capital growth might beg to differ, particularly given that rental yields have largely increased in these areas over the most recent 12 months due to falling prices, I still maintain that wealth through property can only be achieved through growing values, not growing rent returns.

I’d rather put my money into an apartment in a built out high demand inner suburb of one of our capital cities, than in a house on a large block of land in the country.

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About

George is a Director of Metropole Property Strategists in Sydney. He shares his 27 years of experience in the property industry as a licensed estate agent and active property investor to help create wealth for his clients.
Visit www.SydneyBuyersAgent.com.au


'10 good reasons not to invest in regional Australia' have 16 comments

  1. Avatar for Property Update

    March 30, 2012 @ 1:30 pm mattnz

    You seem to have conveniently missed the good regional growth centres like Gladstone with rapid growth in both population and prices increasing at 15%+ per year, while cities like Melbourne and Brisbane have been collapsing, especially their overpriced and oversupplied units.

    Any regional centres with a connection to mining have been the best performed markets in the past 2 years with fantastic growth. You simply need to pick the right ones, rather than those with no growth factors.

    Reply

    • Avatar for Property Update

      March 30, 2012 @ 1:39 pm Michael Yardney

      Mattnz
      Thanks for the comments – sure some regional areas have performed better than some under performing capital city markets.

      The next step is timing it correctly and finding the right property at the right price and not buying in a market driven by investors and speculators

      Reply

  2. Avatar for Property Update

    March 30, 2012 @ 2:15 pm Michael

    I have trouble see the 10 good reasons, the only one I could see , was of slow population growth and relying on one industry town, I would also like to see some long term data over the decades to prove this point. thanks for the article

    Reply

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      March 30, 2012 @ 2:45 pm Michael Yardney

      Hi Michael
      I think the 10 reasons were the 10 regions in the list in the article

      Reply

  3. Avatar for Property Update

    March 30, 2012 @ 11:25 pm Kaz

    Hi,
    Thanks for your frequent posts and information. I do enjoy reading the articles on this site.
    With regards to this article, i think there have been some valid points made here in the previous comments. This article certainly doesn’t provide 10 good reasons not to invest in regional Australia. Regional Australia encompasses many and varied locations, some of which show very positive signs for investors, so blanket statements like this can be a bit misleading.
    Cheers, Kaz

    Reply

  4. Avatar for Property Update

    March 31, 2012 @ 11:30 am Wayne

    Surely the best approach to a balanced portfolio is income and growth. Buying well located property in a regional area, after good research, can provide the servicability required to to help purchase growth properties. Otherwise you can be waiting a long time between purchases.

    Research is the key. Buying in well located area in a capital city for growth can be just as risky if the priceis too high, the property in need of repair and some other down side goes un noticed. Research is the key. Regional growth centres can offer both growth and income if well purchased.

    You can have cities and regions, growth and income, if you do your due diligence and check your numbers!

    Reply

    • Avatar for Property Update

      March 31, 2012 @ 11:39 am Michael Yardney

      Wayne
      You say “surely the best approach to a balanced portfolio is income and growth.”
      Obviously there is more than one way to build a substantial portfolio, but I don’t subscribe to your theory
      All the successful investors I’ve come across don’t “diversify” they specialize in one thing – it’s one of Napoleon Hill’s principals of success.
      The rents for high growth properties grow faster than regional rents and in times overtake them

      Reply

  5. Avatar for Property Update

    April 2, 2012 @ 11:09 am Jake

    I agree with this article’s main purpose of stating that city investment, based on historical growth patterns is a smarter choice if you want less risk and proven growth. However, I would like to rebuke the data selected as justification for the message.

    If you take all suburbs within Sydney and Melbourne and look at them individually you’ll find that their 12 month growth is similar, if not identical, to those in regional Australia. At the same time I’d like to acknowledge that the aforementioned is a generalisation and there are exceptions to the large negative movements in both regional and city locations like either Kew (city) or Geelong (regional) for example.

    Personally I think each suburb and/or town should be considered upon it’s own merits. Yes, urban/suburban areas have the benefits of larger population growth and established infrastructure and thus will perform consistently. Alas, there are also some regional areas that can be very smart investments due to the heavy investment from our dual speed economy.

    I guess it just depends on where your portfolio is at and how adverse you are to risk?

    Reply

  6. Avatar for Property Update

    April 7, 2012 @ 11:04 pm Doug

    So what are the 10 reasons? How does nameing 10 cities, some of which by definition arent in regional australia make it a bad idea to invest in regional australia? I can see three reasons he gives ,but they dont apply to every-where, and can equally be used as an argument to invest in more than 10 places in regional australia. Just as they can equally be used not to invest in some metropolitan areas. Some regional properties have performed far greater with capital growth and yeild better than any innercity or bluechip property. In fact some have had consistent, sustained 8% growth and high yeilds.

    Reply

  7. Avatar for Property Update

    August 27, 2012 @ 12:00 am James

    Reason 1. I sell my services in inner city rings.
    Reason 2. My books are about buying in inner city suburbs.
    etc etc

    Reply

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      August 27, 2012 @ 12:31 pm Michael Yardney

      James – you left out the most important point – that’s where our clients have made substantial profits over the last years

      Reply

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        August 15, 2013 @ 1:03 am Kelvin Lee

        I think it was George Raptis who left out the other “important” points.

        Reply

  8. Avatar for Property Update

    October 3, 2013 @ 6:02 pm dunderhead

    with respect, what nonsense! regional Australia would collapse if investors all pulled out in favour of inner capital cities. but that’s a minor objection compared to the elephant in the room. does it not occur to you (a coomon failing in silver tails) that not all investors have $500k+ to invest? some of us start out with $100k houses in whoop whoop,from there. and we build more of the same – why wouldnt you when same realises up to 12%

    Reply

  9. Avatar for Property Update

    October 3, 2013 @ 6:04 pm dunderhead

    with respect, what nonsense! regional Australia would collapse if investors all pulled out in favour of inner capital cities. but that’s a minor objection compared to the elephant in the room. does it not occur to you (a coomon failing in silver tails) that not all investors have $500k+ to invest? some of us start out with $100k houses in whoop whoop.build more of the same – why wouldnt you when same realises up to 12%

    Reply

  10. Avatar for Property Update

    October 2, 2015 @ 8:22 pm Tom

    I have been contemplating this topic now for a while. I’m looking at buying something under 500k. Am I better off buying something regional such as Wollongong, Newcastle, Bathurst, Orange, Katoomba, Wagga, Nowra or should I go looking at another capital city such as Adelaide which also has properties in this price range although it is a long way from Sydney to keep an eye on it.

    Reply

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      October 3, 2015 @ 1:18 pm Michael Yardney

      Tom when you plan to invest there are 3 variables:
      1. Your budget
      2. Location
      3. The property
      If your budget is fixed at $500,000, then that variable is our of the equation -don’t compromise on location – that will never change – so you’re left with the property.
      For your budget I’d buy an apartment the right suburbs of Melbourne or Brisbane – NOT Adelaide

      Reply


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