Capital Vs Regional

[Freeman]

Hi all, newbie here. Not sure this has been asked but I would like to ask for clarification and understanding.
I know that buying in capital city, chances are there will CG and in due time rental will go up which will become positive. However if you do not have enough $ for places near the city, Regional is another option.
What I don't understand is with regional, we might have positive geared rental. How about Capital growth? I mean in long term, if CG is slow, what good it is to purchase places in the regional areas. Also some of you might say buy more houses in regional.. if there's no CG, there's no or little equity. And might need to use cash to buy.. so have much can we go with regional? What if I don't have enough cash.. Won't I be stuck?
I understand the benefits of buying near capital cities.. but how about regional... What are the benefits of it?

Thank you for your advise and patient in replying me.

 

[Brady]

Do further research.

No reason why a regional can't have CG.

Just like a capital city can have stagnated growth.

Sydney is having a boom now, was pretty flat for a long time.

 

[bez23]

If you go regional, make sure that it has multiple industry and not reliant on just one (eg mining). For some the best way of calculating return is rental yield + capital growth.

If you look around hard enough there are still metro areas that give just as good rental yield as regional. Hence not much point going regional unless you know a big project is going to happen there (before anyone else).

 

[Freeman]

If you go regional, make sure that it has multiple industry and not reliant on just one (eg mining). For some the best way of calculating return is rental yield + capital growth.

If you look around hard enough there are still metro areas that give just as good rental yield as regional. Hence not much point going regional unless you know a big project is going to happen there (before anyone else).

That's the problem.. am always late...

 

[Freeman]

Do further research.

No reason why a regional can't have CG.

Just like a capital city can have stagnated growth.

Sydney is having a boom now, was pretty flat for a long time.

Serious... it's very expensive for now.. Further boom... OMG...

 

[bez23]

That's the problem.. am always late...

Freeman, there's a quote saying "the deal of the century comes once a week". Just keep doing research, in the long term, good value real estate will always go up so no point fretting about lost opportunities. There are plenty of fish in the sea.

 

[chilliblue]

Buying property is like dating.

You have an idea of what you want but normally end up with something a little different.

In the meantime there are always many others passing by all equally suuitable that you are not seeing.

 

[Brady]

Serious... it's very expensive for now.. Further boom... OMG...

Didn't state further BOOM. It can end. It's crazy still at the moment, doens't mean it's not going to go flat again for years to come.

What I'm getting at is just because it's a capital doesn't mean it's going to have CG.

You need to do research.

 

[Peter_Tersteeg]

Serious... it's very expensive for now.. Further boom... OMG...

Everyone is always too late...

I started looking at property in the late 90s. South Melbourne prices were around $300k for a reasonable house. $300k was a lot of money back then, just like $1.5M for the same property is a lot of money today.

I imagine back then there were people at those auctions saying, "Meh, I got my house for $40k back in the 70s".

 

[Harro]

Everyone is always too late...

I started looking at property in the late 90s. South Melbourne prices were around $300k for a reasonable house. $300k was a lot of money back then, just like $1.5M for the same property is a lot of money today.

I imagine back then there were people at those auctions saying, "Meh, I got my house for $40k back in the 70s".

So true! Time is a great leveller.

 

[windyzz]

Everyone is always too late...

I started looking at property in the late 90s. South Melbourne prices were around $300k for a reasonable house. $300k was a lot of money back then, just like $1.5M for the same property is a lot of money today.

I imagine back then there were people at those auctions saying, "Meh, I got my house for $40k back in the 70s".

Well said..... you can't say it's too late if you're goal is investing in long term (i.e. 10 years+), and it will be almost certain that you'll make capital gain.

 

[Corey Batt]

Didn't state further BOOM. It can end. It's crazy still at the moment, doens't mean it's not going to go flat again for years to come.

What I'm getting at is just because it's a capital doesn't mean it's going to have CG.

You need to do research.

Indeed. Supply and demand is the most important factor at play. Geographic location is just one of the factors which feeds into this equation (arguably the biggest factor of course).

To the original poster: most investors I see buying into regionals are either looking for a cheaper entry point + cash flow, a speculative play or a combination. In the end you need to understand the market forces at play, there may be very valid reasons why a regional property will receive substantial capital growth, likewise it may sit in the doldrums.

The same applies to capital city properties, however with ongoing supply pressures capitals can be a lot more forgiving.

 

[serendip]

I think there's regional and regional too. They've been a few regional threads lately, particularly NSW which would be worth reading. Newcastle & Woolongong are both considered regional but have experienced reasonable growth over the last few years. My house is up about 20% over 4 years (about to sell so we'll soon know exactly how much!).

Though these threads may not directly answer your question, I think you'll find some useful info in there.

Some links:

Woolongong / Gosford: http://somersoft.com/forums/showthread.php?t=106542&highlight=newcastle

South Coast http://somersoft.com/forums/showthread.php?t=37526&highlight=south+coast

Regional NSW: http://somersoft.com/forums/showthread.php?t=100863&highlight=south+coast

Newcastle: http://somersoft.com/forums/showthread.php?t=105751&highlight=newcastle

 

[hugh72]

There is a big difference when talking about different regional locations, some are diverse locations with population growth, lots of different industries and they have reached a size that they can adsorb economic shocks. Some other locations are one industry towns which are much higher risk IMO

 

[Biz]

Newcastle & Woolongong are both considered regional but have experienced reasonable growth over the last few years.

Those 2 and the Gold Coast are the odd ones out for me. I wouldn't consider them regional at all. Infact they are bigger than some of the capitals!

Lets call them Sub Capitals!

 

[Harro]

Those 2 and the Gold Coast are the odd ones out for me. I wouldn't consider them regional at all. Infact they are bigger than some of the capitals!

Lets call them Sub Capitals!

Correct. Far more infrastructure than your average Regional. Way more centralised population as well. Notice as well that they all are reasonably coastal.

 

[tomlemke]

Those 2 and the Gold Coast are the odd ones out for me. I wouldn't consider them regional at all. Infact they are bigger than some of the capitals!

Lets call them Sub Capitals!

Lets hype the newcastle market

 

[C-mac]

Everyone is always too late...

I started looking at property in the late 90s. South Melbourne prices were around $300k for a reasonable house. $300k was a lot of money back then, just like $1.5M for the same property is a lot of money today.

I imagine back then there were people at those auctions saying, "Meh, I got my house for $40k back in the 70s".

I like the logic with this thinking Peter, but doesn't the fact that incomes having not kept up in proportion to property values growth trajectories throw this compounding $$$ growth logic off kilter a bit?

I know my comment sounds simplistic and there are thousands of property markets, hundreds of job industries/titles etc., and don't get me wrong... As an investor I of course would love the trend you mention, to continue. But in the year of say 2035, let's assume the same rate of values growth sees for that 1.5mill property in today's value you mentioned, be worth say $8 million in 2035?

Then, how much do you think median (or even 'average') incomes will be in 2035? If median is around $75K now, it might trend upwards to only say 120K in that year 2035, in which case it becomes hugely disproportionate to the house values of ~$8Mill at that time.

I know my comment is slightly off-thread-topic, but it did get me thinking on this income-to-values issue. I know this logic gets bandied about, pretty loosely in the media, but it could well apply here.

 

[AHwee]

I think regional market is a black horse. I believe some of the regional towns will see good returns plus good capital growth in years to come. Reasons??

- Australia is one of the most unevenly populated nation in the world. Some 70 to 80% of the population are packed into 5 capital cities, which occupy like 1% to 2% of the nation's land area. This is extremely unhealthy and unsustainable for this country. I believe as the population keep increasing, the government will intensify its development of certain regional towns to entice people to move there. And these towns should see very healthy growth, even better than many suburbs of capital cities. Like it or not, this is going to happen. The hard part is to select the right towns to invest in.

- people themselves will be motivated to relocate to certain "country towns". This could be due to housing problems, congestion, desire for sea or tree change etc. In short, even if the government does not put much effort to develop regional towns, some of them will still grow by virtue that people want to move there.

- as investment, it is important that we buy cheaper to minimise our risks so in case of downfall, at least the loss in value of houses wouldn't be that much. Also, lower cost of investment pave way for possibility of greater future capital growth. Where else but in country towns do such opportunities exists? It is too costly, if not too late, to buy into Sydney or Melbourne now and hope that 10 years later the property will double in value. However, in certain country towns, this possibility exits and it is certainly much cheaper to do so.

Having said the above, do beware not to blindly buy into just any cheap country towns. Cheap doesn't mean good and it certainly doesn't guarantee growth. Many of the country towns are in fact dwindling in population. There's no point in buying into these areas, no matter how cheap the houses are. Look into towns that consistently grow in population, have a variety of industries and greater than 30,000 in population. Ballarat, Bendigo and Wodonga in Victoria are very potential ones I think. I can't say for other states as I am not familiar with them. But do be careful to buy in the right areas to achieve best growth. Like any capital city, these towns also have good and bad areas.