A smart move for investors
As the idea of country town peace and quiet becomes more appealing, and the ability to work remotely, more viable, it’s no wonder that Victoria’s regional cities are enjoying a huge resurgence in popularity and population – and smart investors are following.
Regions across the state are seeing an influx of city dwellers to country, often fuelled by ever-lengthening commute times from Melbourne’s outer suburbs, increasing traffic congestion, and the cost of city living. It is a ‘migration’ that’s also being supported by the Victorian Government’s concerted efforts to enhance regional infrastructure and services through initiatives such as its $500 million Regional Jobs and Infrastructure Fund.
But while this relocation is helping to boost the local economies and communities, those hopeful tree-changers are also starting to encounter one of the very problems they sought to escape – rental affordability. Why? Simply because often, there just aren’t enough quality homes available in the more popular regional centres.
Is it time for investors to get on board?
Sound growth regularly follows the railway lines, so should sound investments.
Indications at all levels of government¹ and across all shades on the political spectrum²’³ , suggest that regional transport links are set to improve in the coming years. Already, a train trip from Ballarat can take as little as an hour and a quarter, with the added advantage of being able to work on a laptop while the journey is underway. Bendigo presents a similar scenario, as do Castlemaine, Kyneton and, a bit further afield, Shepparton and Traralgon.
With infrastructure being both a key driver and necessary component of growth, investing in locations with excellent road and rail connections, boosted by healthy local economies, is a serious option that should not be ignored, especially while property prices remain reasonable. This level of affordability – which is almost unheard of in the metropolitan area – could be the foundation you need to achieve your investment goals.
In fact, while regional centres continue to grow, it is still possible to buy a reasonable block of land and build a 4-bedroom house for less than $450,000 and then reap a strong rent return.
This is in contrast to the much-publicised softening of the metropolitan housing market in Melbourne. In January, respected ABC finance correspondent Philip Lasker reported that property values in regional Victoria are forecast to push higher thanks to the marked population growth and more reasonable affordability4. Naturally, this is all positive news for anyone considering investing in regional Victoria.
Which direction should we head?
From Gippsland to the Goldfields and even up to the river, Victoria’s regional cities present many opportunities for the astute investor as rental availability dries up. In the twelve months from March 2018 to March 2019, the average rental vacancy rates for regional Victoria dropped from 1.8 per cent to just 1.2 per cent5 . Naturally, this is good news for regional investors, particularly in a number of key provincial centres.
Ballarat
Victoria’s third largest city saw rental vacancies drop to a mere 0.8 per cent at the end of 2018 – with similar declines recorded in Gippsland and the Bendigo region. A quick look at the facts and it is easy to see why Bendigo is so popular: it’s just 90 minutes from the CBD by car (almost the same time it takes to drive from the Mornington Peninsula), it’s a well-serviced and attractive city, train services are fast and frequent, and housing is affordable.
Data accessed from realestate.com.au suggests that the 2018 median price for a 4-bedroom home in Ballarat East, was $445,500 – an increase over five years of 21.4%. And while Central Ballarat’s median house price was higher, so too was the annual growth in value at 6.8%6 . The data goes on to suggest that there is high rental demand for 4-bedroom houses across Ballarat.
Bendigo
Boasting a prospected growth of almost two per cent per annum, Bendigo is one of the state’s most popular choices for those seeking a move from the city, thanks to its progressive community, modern infrastructure, vibrant arts and culture scene, and its strong employment numbers. Like Ballarat, Bendigo is served by fast transport connections to the city, and the airport will soon host direct Qantaslink flight to Sydney six days a week.
This combination of factors has led to exceptionally low vacancy rates, while median house prices in 2018 ranged from $380,000 in North Bendigo (where rental yields were also the highest) to $571,500 in the centre6 .
Mildura
As the ‘capital’ of Australia’s Sunraysia district, with its abundant fruit and vegetable industry and pivotal location in the state’s north west, Mildura is a vibrant and flourishing city with a unique vibe. Given its size and relative distance from Melbourne and Adelaide, Mildura has a greater level of self-sufficiency, which brings with it a need for a productive and varied workforce, seeking quality accommodation.
With a median price of $415,000 for a 4-bedroom house and a median rental of $345 per week, the figures would suggest a strong rental return at an affordable price for the average first-time investor or savvy property owner building a portfolio6 .
A recent report highlighted Midura’s strong growth in property values, noting that the city’s real estate market is in the nation’s top 20, and could see house prices jump by as much as 10 per cent this year7.
Shepparton
Sitting in the heart of Australia’s food bowl, Shepparton-Mooroopna is a major city in the north of the state, and a key hub for agriculture and food-based industries from meat and dairy to fruit and grain crops. As such, it has a robust local economy with strong employment prospects across the agricultural and food industries as well as manufacturing, energy, healthcare, services sector and tourism.
The 2018 median value for a 4-bedroom house in Shepparton was $375,000 with an average rental yield of around five per cent, offering an even better return for a very affordable investment.
But what about negative gearing and capital gains tax?
With an election this weekend, it’s impossible not to ignore the impact that policies may play on investment outcomes. While the Liberal Party is in favour of retaining the status quo on negative gearing and CGT, the Labor Party is proposing significant changes that potential investors would be wise to consider.
Under their proposed policy, the ability to negatively gear an investment property would be limited to just two scenarios8 :
1. Those properties purchased by an investor before 1 January 2020 (this is called the ‘grandfathering’ provision), and
2. Newly built properties.
That means that investors buying an existing property from 1 January 2020 onwards would not be able to benefit from negative gearing.
Similarly, under Labor’s proposed plans, investment properties purchased after 1 January 2020, and held for more than 12-months would only enjoy a 25% reduction in capital gains tax, as opposed to the current 50% reduction. This can significantly reduce the capital returns generated from the sale of your assets – especially in areas where property values are seeing strong growth, such as regional Victoria.
In summary, a returned Liberal Government would be unlikely to propose any adverse changes to current investment rules for most Australian resident, whereas future investors need to be aware of the changes that Labor will seek to pass through Parliament, and how they will affect investment decisions.
Time to make the investment move?
To find out how you can capitalise on the growth opportunities in regional Victoria, have a chat to a specialist investment consultant at WhiteStar Group today for more insights into smart property investing in the regions.
We source property packages as well as land in Melbourne’s key growth areas. Save yourself time, money and headaches. Talk to us.
1https://regionalrailrevival.vic.gov.au
2https://www.liberal.org.au/our-plan/infrastructure
3https://www.smh.com.au/federal-election-2019/labor-to-spend-1b-on-bullet-train-route-from-melbourne-to-brisbane-via-sydney-20190509-p51lqw.html
4https://www.abc.net.au/news/2019-01-07/what-lies-ahead-for-the-property-market-this-year/10687188
5REIV
6realestate.com.au
7http://www.sunraysiadaily.com.au/story/5848411/mildura-house-prices-set-to-jump-by-10-per-cent-in-2019/
8https://www.alp.org.au/negativegearing