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Steer clear of regional property

I know some commentators are recommending buying investment regional properties. I guess they see them as a countercyclical opportunity, but I would caution prospective investors to steer clear of regional Australia.

I’ve explained my thoughts in a recent blog and new figures from RP Data confirm that property markets across regional Australia are weak as many areas struggle to find solutions to the loss of tourism and fewer sea changers.

Over the last 12 months house values in areas outside of our capital cities have fallen by 1.8% however, in many of the major regional centres the falls have been much greater.

The good news is that New South Wales has had the best performing regional housing market. Values across the state’s regional towns and cities are currently at an historic high and have increased by 0.9% over the year according to RP Data.

The NSW Hunter and Illawarra regions, close to Sydney, are standout performers, RP Data says, with values rising 2.2 per cent in the Hunter during the past 12 months and up 3.6 per in the Illawarra. Both areas are supported by a strong mining sector and their close links to Sydney.

By contrast, regional markets in Queensland and Western Australia have performed poorly. In Queensland, regional housing markets fell 5.1% over the year and regional properties in Western Australia were down 6.8%.

You’d have to have been living under a rock not to know how poorly the Gold Coast property markets have been performing with house values in the region down 11.6% from their peak in January 2008, before the onset of the global financial crisis.

The Sunshine Coast has also recorded a significant fall with house values down 8.1% from their peaking in February last year.

According to RP Date many areas are hampered by weak tourism, a slowing in sea-change migration and a lack of economic diversity and the short-term prospects for many of these markets are not strong, with consumers cautious and unwilling to spend big on property and once-prospective retirees focusing on rebuilding their retirement nest eggs.

Generally, most of these regions will need to see a rebound in tourism, significant improvements in consumer confidence and an increasing propensity for consumers to spend in order to see improvement in the market. The potential for this to occur seems unlikely over the short-term and these markets probably won’t start to improve until regional economies show some improvement and regional migration flows once again become apparent.

I understand that there are always exceptions. Some better performing regional areas are outperforming a number of poorly performing capital city locations, but or me capital cities are the place to be. There is a wider demographic of owner occupiers and investors as well as a bigger economic base to provide jobs. And after all… that’s why more people want to live there and always will.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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