It’s the classic dinner party conversation between savvy investors – where are the bargains in real estate today?
During the GFC, the Australian property market was ripe with opportunity for the few who had liquid funds. Here in Sydney, we heard many stories of wealthy investors buying up house after house in suburbs like Palm Beach, where prices dropped off substantially due to a mass holiday home sell-off.
That’s what a smart investor does – they look past the woes of today and take advantage of the silver lining.
The affect of the GFC in capital city markets is basically behind us. We had a small correction followed by rapid growth as buyers sought value in the improving economy. In regional markets, it’s a different story.
Regional markets suffered more than urban markets during the GFC for three main reasons. Firstly, there was a major sell-off of holiday homes so supply began surpassing demand. Secondly, the major industry of regional markets – tourism, declined substantially and continues to struggle now due to the strong dollar making overseas travel very attractive. Thirdly, downsizers and retirees began delaying their seachange or treechange due to superannuation losses and a volatile economy.
Today, our economy is doing much better and people are more confident. RP Data reports that property prices in capital city markets in financial year 2010 rose about 10.5 per cent on average but major regional markets were up only five per cent. I’m talking about major regional markets here – the strongest markets of all our coastal and country towns. These areas have a solid long-term history of strong growth so a five per cent increase is pretty low.
And therein lies an opportunity for bargain buyers, but it won’t last long – I’m tipping mid-2011.
There are already signs of improvement in these major regional markets and that’s exactly when you want to buy – on the cusp of an upswing.
In NSW, some of our regional offices report a huge proportion of buyers from Sydney looking to purchase now for investment, a lifestyle change or retirement. Over the past few months, our Bowral office estimates 80 per cent of buyers have been from Sydney, in the Blue Mountains it’s 60 per cent and in Port Macquarie it’s 40 per cent (this also includes buyers from Melbourne and Brisbane).
In terms of regional hot spots, I’m tipping the following locations as great buying now for future capital growth in NSW: Byron Bay, Warners Bay and Shelly Beach (North Coast); Towradgi (South Coast); Empire Bay (Central Coast); Wentworth Falls (Blue Mountains) and Burradoo (Southern Highlands). In QLD, I like the Gold Coast where there is incredible value particularly with waterfront houses along the deep canals.
Generally, investors can’t go too far wrong with beachside towns or regional suburbs with fast commuter access back to your capital city. Just don’t buy in an area that is solely reliant on one industry, particularly tourism, to power its local economy. Any market linked to mining is definitely a good bet.
In addition to prices, look at rental demand too. It’s all very well to buy a bargain but if you can’t find a tenant your investment will be seriously compromised.
Start your research now and perhaps take a holiday in the regional market you like best for investment this month. Many agencies in major tourist towns are open during January for exactly this reason.
Time is on your side and while recent sales can help you get to know a market you’re unfamiliar with, you definitely need to spend time on the ground. Signs of a good regional market for investment include new infrastructure, a good local economy with a mix of major industries, busy shops and cafes, schools, clean beaches, recreational facilities and good public transport.
If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.