From the Fairchild Group desk:
More and more property investors in Australia are looking at purchasing homes in regional towns. Property investment as a whole is a lucrative way of building wealth, which means those who are just starting in the world of investing are looking at what seasoned veterans are doing, which is investing in regional properties. As a result, people’s interest in properties is rising even further. However, it is important that you know what you are doing, and what you should be looking for, if you are considering this type of investment yourself.
Increased Demand for Regional Properties
Investing in regional homes has soared in both Queensland and Western Australia. The areas that have been most affected by this boom are Gladstone, Port Hedland, and other similar regional centers.
What is known is that regional mining towns are cyclical in terms of property prices. Hence at The Fairchild Group we like to say that, as an investor, you can predict the cycle correctly, then it is possible to earn a significant amount of money. Two factors to look for when deciding to invest in property are the potential for capital growth and the possible rent yield. If bought at the right time, then it would be possible to build significant wealth through properties in these regional areas.
Risks in Regional Centers Dependent on Mining
That said, regional centers that are dependent on mining are usually high risk areas. This means that an investment has the potential to lead to a significant gain, but equally to a significant loss. This is not the type of investment for amateurs, in other words, nor for those who cannot afford to take a loss if it were to happen.
A property in Port Hedland can serve as a good example. Some of the best strategic investment thinkers purchased properties there in 2009 and then sold en masse in 2012. They made millions between them. This resulted in amateurs trying to do the same, purchasing properties in Port Hedland in 2013. Unfortunately, should they want to sell now, they would suffer a significant loss. This is leaving investors with properties on their hands that are not yielding any substantial return on their investment.
Western Australia is another key area to look into. Before deciding whether or not to invest in a property there, there are a few important issues to take into consideration. The most important is what is fundamentally driving the value of property in this geographical area. Interestingly, those are the same drivers that are experienced in the metropolitan area of Perth.
Fairchild Group Advice: Check Out Long Term Demand for that Area
One important issue to consider is the property’s expected long term demand in that area. Investing in property should always be a commitment for several years. A number of factors will determine this, including business investment and population growth. Generally speaking, more business investment means more job creation, and more job creation means larger population growth, both in terms of couples feeling confident about having children, and in terms of people moving to that area from elsewhere.
The southwest area of the country, for instance, has recently seen an increase in job creation, leading to strong population growth. As a result, property values have risen dramatically in many regional centers. This is particularly true along our country’s coastal lines. This trend has been continuing for quite a number of years now.
By contrast, there are certain other regional areas where job growth and the resulting population growth, are more sporadic. A good example can be seen in the northwestern goldfields, where the upturns and downturns have gone through huge peaks and deep troughs. These are economic conditions that have had a significant impact on the overall real estate market in that area.
Those who invested when the boom times were peaking will have seen their investments lose value rapidly. Unfortunately, demand for resources and mined materials fell dramatically across the world, and this had an impact on the entire local economy.
Difficulty in Predicting Economic Growth in Regional Areas
The problem with regional areas is that it is, unfortunately, very difficult to predict economic growth. Even if there has been a strong growth in one area, this is not necessarily sustainable. Furthermore, although business investment usually leads to job growth, and job growth leads to population growth, this is not always the case. That is because these types of geographical locations have what is known as “fly in fly out” employment rates. In other words, people are brought in for short periods of time to complete a project, after which they will then leave. While rental accommodation demand does increase during those periods, it is often not enough for an investment to be sustainable as well.
Eight Factors to Consider and How They Apply to Regional Centers
At Fairchild Group Wealth Management we point out eight factors that someone who is considering a real estate investment should consider when it comes to selecting a property:
- Capital growth rate
- Population growth
- Residential vacancy rate
- Established and planned infrastructure
- Median property price
- Rental yield
- Tax effectiveness
- Little luxuries
To ensure that all eight of those factors are positive, and therefore suggest a good investment, regional centers should focus on a multitude of industries, rather than on just one. Additionally, areas with a scarcity factor are the best ones to invest in. Furthermore, it is important that there is an established community with good prospects for population growth, which includes having excellent social infrastructure.
Most Lucrative Regional Areas
The most popular and most lucrative regional areas of all are those that can easily access the Perth metropolitan area, either by rail or by road. Interestingly, these properties seem to be particularly interesting with older investors. It is believed that this is due to the baby boom generation aiming to retire between now and the next few years, and they look forward to moving out of the city, while remaining close enough to enjoy city amenities.
Conclusion from The Fairchild Group wealth management team
Whether now is the time to invest in regional properties or not is unclear. There have been some suggestions that the housing boom is at its peak, which would make it impossible to ever sell at a profit. That said, not everything is never clear cut. If you want Fairchild Group to assist you in the process, simply contact us.