Contrary to popular belief, property investors can often make better long-term returns from cheaper regional properties than dearer metro properties.
That’s the view of Arjun Paliwal, the founder of InvestorKit, one of Australia’s leading buyer’s agency firms.
Mr Paliwal said that if you analyse historical data, and drill down to the suburb level, you’ll find that many regional postcodes have delivered better long-term returns than metro postcodes. That’s why InvestorKit often buys in both capital and regional locations.
“If you’re an owner-occupier, and you want to live in a capital city, then of course you should follow your heart and buy metro,” he said.
“However, if you’re an investor, and your sole focus is getting the best possible financial result, then you should buy based on the numbers.
“The numbers don’t lie: many regional locations have outperformed big cities over the last three years. For example, during that time frame, houses in the Ballarat suburb of Wendouree have delivered higher average annual growth in median values than houses in the prominent Melbourne suburb of .
“Why? A lot of people don’t realise that property isn’t just about demand, it’s also about supply and confidence.
“Yes, our big capitals keep attracting lots of new residents, which lead to increased demand. But they also attract lots of property developers, who increase supply. If the growth in new builds increases at a higher percentage than the growth in new residents, then this puts downwards pressure on prices and rents.”
“By contrast, regional cities attract far fewer new residents each year. But they also attract far fewer property developers, because there’s less business available. So, often, demand steadily increases year after year, while supply barely moves. That can place upwards pressure on prices and rents.”
Mr Paliwal also said that cheaper properties can often deliver better long-term returns than dearer properties.
“Again, it’s all about supply and demand. A multimillion-dollar mansion sounds like the perfect investment property to own, but the fact is that very few people can afford to buy or rent those homes. That means demand is limited, which puts downwards pressure on prices and rents, should there be major shocks in buyer demand, such as credit policy changes,” he said.
“Conversely, a typical three-bedroom home in a good suburb will always be popular with a big chunk of Aussie families. That can put upwards pressure on prices and rents due to the larger buyer base.”