Six things you need to know before buying regional property
House prices in regional markets have surged in the wake of COVID-19, as more of us are able to work remotely and move out of over-crowded cities. Regional house prices rose 6.9% in the year to December according to property researcher CoreLogic, almost three times the 2% rise in city house prices over the same period.
The "COVID flight" has been driven by three major factors; the fact that more people can work from home, the relative affordability of regional housing when compared to city prices and a growing preference for lower density housing options.
Imagine, for example being locked up in a one-bedroom apartment for 13 weeks as many Victorians were during 2020? Indeed, urban claustrophobia in Melbourne led to a 44% surge in property listing views for regional parts of Victoria according to Domain Group data during 2020, the biggest increase since 2017. Australia-wide migration numbers from the ABS show net internal migration to the regions rose to a record high in the June quarter.
One question for both homeowners and investors considering buying regional property is will these conditions continue? You may be able to work full-time from home now, but will that still be the case when the world returns to more normal conditions in the wake of vaccine rollouts?
Prospective buyers also need to realise that not all regional markets are the same; it's important to follow some basic rules when selecting an area to buy into.
1. Choose areas that are within commutable distance of major centres says property investment expert Margaret Lomas, founder and director of Destiny Financial Solutions.
"It's unlikely that the majority of workers will work solely from home so the ability to get to the office at least a few times a week remains paramount," says Lomas, who has hand-on experience of investing in regional areas.
Not surprisingly there has been strong increases in demand for homes in commutable regional areas says Core Logic. House sales volume increased by double digits across the mid north NSW Coast, Illawarra and the Hunter Valley in the 12 months to December 2020. Ideally choose areas with good transport links within a 1.5 to 2 hour commute, says Lomas.
2. When considering a regional area, the main focus must be jobs and a diversified industry base, Lomas says. Buying into a one-trick town which relies too heavily on one or a few industries such as mining or the car industry is risky.
Also favour areas where new infrastructure - such as major transport, health or education facilities - are either underway or planned.
3. Another important factor for sustained growth is families and the provision of amenities for those families, Lomas says.
"Any areas with a predominance of the family demographic, coupled with ample schools, day care centres and sporting fields etc, is an area that has a more stable population, as families tend to anchor an area for the school years and don't move about as much," Lomas says. This often leads to a scarcity of housing and rising prices.
4. Affordability is one of the biggest attractions of regional property but beware areas that are "too affordable" as this can be a sign of low demand which will make it harder to sell and more difficult to rent if you are an investor.
Similarly, be wary of "cheap" areas within regional centres as this may indicate the area is lacking in amenities or has some stigma attached to it, which again could make selling, or renting out, trickier.
5. Never buy a property anywhere without inspecting it and getting independent building and pest reports, no matter how much of a bargain it seems. The clever use of photographs on the web can make a property look much better than reality and you also cannot get much of an idea of the surrounds and how accessible it is to amenities.
It's also important to get a feel for the regional area overall and how vibrant the town centre is. A lot of vacant shops can be a warning sign.
6. Be aware that it might not be as easy to borrow if you are buying into a regional area, Lomas says. Generally, lenders like to lend in areas with reasonable populations so small country towns may reduce your options for borrowing.
As well each lender may only want a certain amount of exposure in an area and stop new lending once that exposure is reached. Wise buyers should see this as warning. If a lender won't provide finance for an area that should be a sign that the risk is higher and the area has little in the way of growth drivers, Lomas says.