The Australian residential property market has seen many booms and busts over the past 20 years, however astute investors will always come out on top as they have strategically selected the right location for their property. These investors put careful consideration into the state, city and exact suburb the property is positioned in.
In the selection of a suitable area for an investment property, a common question that divides investors is:
Will I see stronger growth with a property located in a regional or metro area?"
Regional vs metro areas historical performance
In the below graph, CoreLogic reveals the change in dwelling values over the past 20 years, ending January 2019 [1].
The graph illustrates both regional and capital city (metro) areas of Australia.
Both regional and metro areas have demonstrated strong performance overall over the past 20 years.
However, metro areas comprising of the capital cities in Australia did come out on top, bringing in a total of 212.4%, where combined regional markets achieved 150.3%.
It's clear that metro areas outperformed regional areas, however, it doesn't mean that every city experienced strong growth. For instance, there was a vast difference between the strongest performing city of Melbourne at 274.6%, compared to Darwin only bringing in 38.4%.
Where should you be investing?
Now, of course, there are many circumstances and factors to assess when selecting a suitable investment property, located in an area with growth prospects.
When determining whether to invest in a regional or metro area, the first questions to ask yourself are:
How much can you borrow from the bank?
How much are you willing to invest for the deposit and initial costs?
Even though you have determined your borrowing ability and appetite for risk, it isn’t as easy as picking any regional or metro area that you can afford and hope for the best.
There are many underlying fundamentals at play within any given area and it’s crucial to understand what point of the property cycle these areas are positioned prior to selection, regardless if it’s affordable or not.
Some questions to factor into the assessment process:
Is the area nearing the peak of a cycle?
Is the area heading towards a correction in price?
Is the area affordable to the local demographic?
Does the area have capital growth prospects in the medium to long term?
Does the selected area have strong employment drivers and diversification on industry?
Past performance can reveal many layers including markets that have underperformed, however, past performance alone can’t determine the likelihood of property prices moving forward. So all the fundamentals at a macro and micro level should be assessed before selecting your first or next property investment.
Jarryd Gauci – Property Investment Consultant
P: (02) 9939 3249
References
[1] CoreLogic - Property Market Chart Pack 2019