Investors looking outside Sydney for value

Written by Angus Raine in Investment on June 25, 2012

Sydney real estate values are among the most resilient in the world, with average home prices nudging $600,000. While this is great news for owner-occupiers, the northern trajectory of Sydney real estate values means that more savvy investors are looking to regional and coastal markets to achieve their financial objectives.


Investors set their sights on regional towns

In many cases, regional and coastal property values are being boosted by smart investors who are looking for towns with growing populations. Many of these towns have robust education and tourism sectors, or are enjoying the spinoffs from the mining boom. Interestingly, it’s a bit of misnomer that the mining sector isn’t creating jobs. For instance, a recent media report suggested that the mining sector employed 249,700 workers in February 2012, which is up almost 68,000 since May 2010.

Towns such as Tamworth, Bathurst, Newcastle, Albury/Wodonga and Wollongong are squarely in the sights of investors where healthy yields in excess of 6% and capital growth are possible.

Likewise, the appeal of high rental yields and low vacancy rates of 1.15% has sparked investor interest in one of NSW’s favourite holiday destinations – Nelson Bay. Investors traditionally represent about 25-30% of this market, according to Ray Noonan, Principal of Raine & Horne Port Stephens/Nelson Bay. He said, “Confidence is gradually returning on the back of improving rental yields, which are tracking around the 5% mark, however higher yields are also certainly achievable in our region.” As a result, Nelson Bay is enjoying the best rental yields in many years, which is attracting plenty of investor enquiries.

Investor Success Stories

In Wollongong, my colleague, Josh Kersten, Co-Principal of Raine & Horne Wollongong, reports that there are examples of Sydney investors buying multiple units and even entire apartment blocks in NSW’s third largest city. Raine & Horne Wollongong recently sold four apartments in the same block at 19 Railway Crescent, North Wollongong to a Sydney-based property syndicate for $830,000. Each property is currently leased for between $275 and $280 a week, generating a gross rental return of more than 7% each for the syndicate.

Another investor, according to Mr Kersten, purchased a block of four 2-bedroom apartments in Lake Heights on Wollongong’s outskirts. The investor paid $630,000 for the block that is generating a combined rental return of $880 a week, which represents a gross yield around 7%. This is an excellent result for a residential investment. At the same time, Wollongong’s vacancy rates are currently sitting below 1%, which is fuelling strong rental returns, and in turn, is enticing shrewd investors.

Interestingly, the University of Wollongong, which is ranked among Australia’s ten best universities and is in the top 2% globally, is a major contributor to the regional city’s healthy rental market. “It has attracted cashed up international and interstate students to the city, nearly all of them renters, who are willing to pay top dollar just to secure accommodation,” said Mr Kersten.


Tips for Regional Investing

Now don’t get me wrong – buying a regional real estate investment is not a license to print money and the fundamentals are the same as buying a rental home in a capital city. Like in the city, a quality, well-located regional property investment can provide long-term capital growth and healthy rental returns.

However this advice comes with a major caveat that you must do plenty of research before taking the plunge. For instance, I’m looking at a regional investment myself and am immersing myself in as much business, economic and demographic data about the regional town as I can. My first source of data is always the Australian Bureau of Statistics website, followed by state and local government information. I also try and get my hands on as many real estate and personal finance magazines as possible, and read property blogs on websites, which can provide loads of analysis about the prospects of a town or region. In addition, real estate agents are a fountain of knowledge about their suburb, town or region.

That said, there is nothing like first-hand experience and I’d urge you to jump in the car, or take advantage of the relatively low cost of domestic airline travel, before buying a regional or coastal investment property.