The differences between the regional and metro property markets are intriguing, from cash flows to risk profiles to agent interaction. But many investors focus on the wrong things when deciding between the two markets.
I’ve written this article to help buyers understand why one can be a better option than the other, and how to enhance the shopping experience by appreciating the market differences.
1. Cash flow
Investors often target the regional areas because the out of pocket cash flows are lower than metro equivalents. Our regional areas offer rental returns at a much stronger level than the city rental returns. The combination of a higher percentage of the population who rent and a lower number of available rental properties characterise many of our regional cities. Cash flows generally range from slightly cash flow-negative to cash flow-positive, although mining towns are not included in this generalisation.
2. Lower price points
Investors who have less than $300,000 to spend on an investment property can confidently target regional areas. Comparing gorgeous, renovated period houses or sizeable family homes in regional townships to dated, one-bedroom apartments is a stark contrast for many investors. Those who are disillusioned by the lending constraints on tiny apartments and buyers who feel more comfortable with the prospect of a house on a full block of land commonly turn to country towns in an effort to avoid lender scrutiny. In this market, where apartments are met with scepticism in some major cities, it’s little wonder buyers are looking beyond the capital cities.
3. Potentially higher risk of market downturn
Regional cities aren’t always predictable and not all track at the same pace as our capital cities. Even regional cities with tens of thousands registered as the population figure (or in some cases, over 100,000), there is no guarantee that a regional town is protected from market downturn. Employers can leave, downsize, go into liquidation, go offshore – the list of threats is long and they usually relate to major employers. The mining industry is not the only threat and government-decentralised services are never guaranteed to stay domiciled in these towns. The secret to any confident investor’s plan is to be satisfied that employers are diversified, nearby major cities are within reach for a certain percentage of the population who are prepared to commute or work remotely, and the population needs to be strong enough to resist a vibrant town becoming a ghost town as a result of industry downturn.
4. Less ’sales-y' agents
Agents are different in the country towns. This is one of the things I love about working in regional areas. Sales campaigns are run differently and vendors approach a sale differently. When city slicker buyers move into country towns and belt agents with harsh offers, tight deadlines and no-nonsense approaches, the agents often respond in a way that is not expected. Sometimes they baulk or walk away from the negotiation altogether. Regional agents are often less aggressive, don’t take on the same price quoting methods that city agents take on and are usually more ‘true’ to their spoken word. A lower percentage of properties run to auction and as a result, price queries are answered in a less mysterious way.
In the regional centres, an agent’s price quote is often genuine. For example, $360,000 to $380,000 in a regional town most probably means “if you give me $380,000, the deal is done. At $370,000 it’s a maybe, and don’t offer me $360,000 if the property hasn’t been floating on the market for at least four weeks”.
City buyers often assume that a $360,000 to $380,000 quote range signals that a vendor is looking for $400,000. Underquoting is not as practiced in regional towns.
To add to the list of differences, agents are more prepared for conditional offers and it’s not unusual for a three-week finance clause to be accepted on a newly listed property.
Interestingly, not every vendor is armed with a contract. Many agents field offers verbally and order a contract once terms are fleshed out with a series of conversations. Most metro agents won’t consider offers unless documented on a contract.
And to add something special to the experience, many regional agents have been raised in their townships and are born and bred in the local area. Their insights, local experiences and willingness to share their own affinity with the area shine through in many ways. A friendly country agent can turn a 15-minute experience into a half hour chat.
Dealing with country agents is different and it’s generally a very pleasant experience.
5. Softer competitive negotiation tactics
While these local agents know their market and care about their vendors too, they don’t adopt as aggressive tactics as metro agents do. This is partly because the regions have a lower proportion of auctions, and partly because vendors are accustomed to accepting the price they targeted from day one.
Rather than challenging the agent to find another buyer to push the price up, many regional market vendors are satisfied to accept the price tag they flagged as their ‘buy it now’ price from the onset. Perhaps they’ve seen tougher times in the past and understand what greed can do. Or perhaps they are conditioned locally to accept a fair offer and move on. I’ve had many a handshake from a willing agent who has achieved their vendor’s price and been happy to close the sale out without a call to other potentially competing buyers.
Quite different to how it is done in the city, and a lovely change to the cut and thrust of highly charged emotional bidding.
The differences are numerous but investors need to identify the best strategy for their portfolio, regardless of the nature of the markets and local agents.