Regional property prices have soared in the past year, rising by 13 per cent compared to 6.4 per cent growth in capital cities, latest figures from CoreLogic said.
Despite the stellar results, first-time property investors should be wary about entering the regional residential market because it is not a “sure-fire investment winner,” warned Adviseable property buyer, Kate Hill.
“We have been investing in major regional locations for years and conversely, have been giving other rural and remote locations a wide berth for a long time too including right now,” Ms Hill said.
She said that pent up demand and record low interest rates are motivating investors to buy into markets “but the fundamentals must stack up over the long-term as a strategic investment location.”
While there has been an increase in the number of people moving away from cities to regional areas as more people work from home because of the pandemic, “only time would tell whether the trend would become permanent.”
“Some investors might be considering these short-term migration patterns, as well as the current robust price growth, as justification for buying into regional areas.
“But, in a year or two, they may be left with an investment property in a location where many of the new residents have already reversed their decision-making and gone back to the city,” Ms Hill said.
She said that many first-time property investors may have bought into an area where the local economy was reliant on one industry, such as tourism or mining, which may not deliver significant or sustainable capital growth over the years ahead.
Investors must consider the investment fundamentals of the regional location before buying into the area.
“Some of the key fundamentals include having a diverse and vibrant local economy, solid jobs growth and a variety of industries such as health, construction, retail and education to adequately service its local population,” she stressed.
Buyers must complete a “thorough due diligence on the future prospects of a place, rather than making decisions on potentially short-term fluctuations.”
“Just because a place has had a few months of price growth and property prices seem affordable, doesn’t make it a sound investment location.
By purchasing in an inferior regional or remote location, some investors might find out that the so-called ‘cheap’ buy-in price becomes a very expensive ‘experience fee’ with the benefit of hindsight,” warned Ms Hill.
However, SQM Research director, Louis Christopher said the strong run of regional property market could continue for the next 12 to 24 months.
“I see no evidence at this point in time to suggest that a major reversal back to the capital cities has occurred. I think demand for regional properties will remain strong until people are confidence that vaccines have done their job,” he said.
According to CoreLogic research director Tim Lawless, Byron Bay recorded the biggest gain in value at 29.9 per cent, followed by Ballina at 28.6 per cent.
Houses in Ararat in regional Victoria increased 26.1 per cent in value, Noosa went up by 22.1 per cent while homes in the Richmond-Tweed region chalked up 21.9 per cent in the last 12 months.