Long term capital growth goes to the regional areas

Posted on 30/04/2015  
Long term capital growth goes to the regional areas

If someone with an aura of credibility told you city prices were growing at 2.4 times the rate of regional prices, you’d concentrate on capital cities for investment. Right?

Sure you would, particularly if you wanted to join the 75% of investors who have a bad experience in property investment. Absolutely you would, if you were among the vast majority of investors who are driven by the herd mentality and buy in the wrong places. Certainly you would, if you’re destined to be among the 73% of investors who never get beyond owning one property.

Through email, phone, webinars and face-to-face at workshops and seminars, I have a lot of contact with Australian investors. And most of them make their buying decisions based on impressions generated by media sound bytes. Very few do any genuine, independent research.

The information about capital city house prices versus regional prices is a timely case study in the media-created misinformation that causes people to make bad choices.

Here’s what it says: Capital city house prices are growing twice as fast as regional prices.  In NSW, the median metropolitan house price rose 13.4% in the past 12 months, while the median country house price rose 5.6% to $385,000. In Victoria’s median metropolitan house price increased 6.6% to $550,000, while the median country house price rose 2.5% to $200,000. In South Australian prices grew 5.1% to $426,000 in the city and 1.8% to $290,000 in the country. And so on, through the other states and territories. And this is what media reported, publishing the press release without any analysis or interpretation or alternative viewpoint.

I know, with great certainty based on decades of experience, that one day quite soon someone will send me an email or approach me after a seminar presentation and quote those figures as the reason they’ve decided to stick with big city investing.

The only useful thing this “research” shows us is that buying in the regions has appeal because it’s so much cheaper than capital cities. We know from other research that regional centres have much higher rental yields than the major cities (generally speaking – you need to delve deeper for specific data). The only area where reassurance is needed is capital growth prospects.

The published figures don’t tell us anything useful on that subject, because they portray results for one 12-month period (meaningless information to a switched-on investor) and because they are generalised figures which conceal the best performers in property.

I know from the regular analysis we do at Hotspotting that the best locations for long-term capital growth rates are in the regions. The top 10 locations for the best growth averages over 10 years are all regional centres. Some of them are resources-related centres, still leading the nation despite the decline in the past couple of years.  Click here for our Top 10 Best Buys 2015 for more information.

(I’m definitely not advocating investment in mining towns – just making the observation that some of the best long-term growth rates in the nation have been mining towns, most of which are no longer performing on price growth or rental returns).

A friend recently asked me for some figures about Adelaide to make a point to a colleague of his, who believed upmarket Unley would have a much better capital growth rate than outer suburbs, because it was close to the CBD. This encapsulates one of real estate’s most enduring myths.

I came up with a long list of middle ring and outer ring suburbs with much better capital growth rates than Unley - which, at 5%, has a modest growth average.

But I also confirmed that the best growth rates in South Australia were even further from the CBD. They were way out in the vast regions of that state, where numerous distant regional centres have capital growth rates above 8% per year, well in excess of those in the capital city. They include Ceduna, Coober Pedy, Port Augusta and the best performer in South Australia, Whyalla.

But if you took an average or median across all of regional South Australia, you would come up with a low figure, because there are plenty depressed regional towns to drag down the generalised figure.

You could wallpaper a McMansion with all the articles written about Sydney’s boom, but you need to go outside the capital to find the best recent growth in NSW. In the City of Gosford, 10 suburbs have recorded median price growth above 15% in the past 12 months, including some above 20%. There has been exceptional growth, also, in locations in the Blue Mountains and around Wollongong.

In Queensland, where the Brisbane market is gradually rising, you need to head 1,700km north of the Brisbane CBD to find the state’s best growth of the past 12 months. Several suburbs of Cairns have recorded median price growth above 20%.

Other regional markets that have been out-performing Brisbane include the Sunshine Coast and Toowoomba. But an average figure across all regional cities and towns would be low, dragged down by the many resources-related centres which are currently in decline.

The generalised data spewed forth by the publicity-hungry research houses often deceives, because there’s no depth to the numbers and no analysis or oversight.

To be successful, investors need to dig beneath the shallow media numbers to find the best places to buy. Sadly, few do so and end up making decisions based on misinformation.


Terry Ryder is the founder of hotspotting.com.au



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