Australian property investors are notorious for shooting themselves in the foot financially by making really dumb decisions.
Most of those who can be categorised as property investors, by virtue of having bought a rental property, never get beyond one or two properties. Those who own a “portfolio” are less than 1% of the total.
The ones who make informed decisions and accumulate properties steadily to create a secure financial future are quite rare. They’re the ones who are smart enough to know what they don’t know.
Plenty of people think they “know” real estate. In reality they have their heads chock-full of myths and misconceptions. They equate scanning newspaper headlines with research.
And their biggest mistake is the belief that “prime” property shows the best growth. And “prime” is defined as the inner suburbs of the biggest cities.
It’s quite stunning to encounter so many punters who won’t consider the regions, or even the smaller capital cities, because they believe you have to be in the big cities to have the best chance of success.
Real estate professionals like buyers’ agents come up against this hurdle every day. They know that key regional centres have been out-performing their capital cities for years and they also know that the prevailing trends driving future growth all point towards regional centres.
But their clients, the wannabe investors, won’t budge from their addiction to the big cities.
They think anything beyond a 15km radius of the CBD is risky. For far too many people, distance from the CBD is the only measuring stick that matters.
In truth, CBDs are becoming increasingly irrelevant.
Most of the 5 million or so people who live in the Greater Sydney Area don’t live anywhere near the CBD. That part of Sydney with all the tall buildings is irrelevant to them. They don’t work there, they don’t shop there, their kids don’t go to school there. They have no reason to ever go there, most days of the year.
And outer-ring areas of the Sydney metro area have had values rising at exceptional rates at a result.
Here are some of the long-term growth rates (10 year averages) in outer-ring Sydney, according to CoreLogic data – Canley Vale 8.7% per year, Castle Hill 8.4% per year, Gregory Hills 12.9% per year, Liverpool 8% per year, Marsden Park 13.7% per year, Middleton Grange 12.6%, Minto 8.3% – the many other examples.
But the dominant trend in this nation is people getting the hell out of the inner-city areas and heading bush.
It’s not a new thing. The nub of life is moving further and further from the big cities. The Exodus to Affordable Lifestyle has been under way for some time but has been turbocharged by the pandemic lockdowns – particularly in Victoria.
Figures from research analyst Simon Pressley of Propertyology show that regional cities have been outdoing their capital cities on value growth for the past five years.
In New South Wales, Sydney’s overall price growth in the five years to April 2020 has been surpassed, by quite a big margin, by Wollongong, Newcastle, Port Macquarie, Coffs Harbour, Ballina, Byron Bay and many others.
In Victoria, Geelong and Ballarat have outshone Melbourne over the past five years and right now multiple regional centres are showing good growth at a time when the capital city is falling. In Queensland, both the Sunshine Coast and the Gold Coast have done better than Brisbane over five years.
Some of the smaller capital cities have also done better than the big cities. Canberra has out-performed Sydney and Hobart has done considerably better than Melbourne since 2015.
And beyond Hobart, there’s been outstanding growth in the past five years right throughout Regional Tasmania.
As always at Hotspotting, we’re more interested in the future than the past – particularly because the past does not always inform the future. And in that regard the regions will continue to be the big story.
The biggest trend in real estate, the Exodus to Affordable Lifestyle, is very much driving real estate consumers to the smaller capital cities and to regional markets. This is already creating price growth at many locations across the nation and will continue to do so.
One of the best forward indicators of price growth is vacancy rates and this, again, points us to the smaller capital cities (Perth, Adelaide, Canberra, Darwin and Hobart are all below 1%) and in particular to multiple regional centres (where 1% and lower is common).
This is putting upward pressure on both rents and prices.
In so many ways, I see investing in good regional centres – the emphasis is on “good” – as a win-win-win situation. Lower prices, higher yields and great prospects for capital growth.
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