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Regional NSW property market gems

Written on the 18 April 2017 by James Cagney

(A six minute read)

Before I cover what I believe will happen in the regional areas of New South Wales I must mention that I understand that many of my readers will have different opinions and ideas about the areas I cover.  When I talk about a correction in the area I imagine some readers adamantly defending their property values. Please note this is an opinion based on sound research and logic. My opinions are not biased by any emotional reasoning .  Please note I have no local real estate agency business in any of these areas so I do not have to make up a "background story" about the property in order to sell any listings because I need the commission.

Before we look at why you would look at a regional area let's look at the median price of houses in capital cities. Cameron Kusher of Core Logic reported in September 2016 that the price of property in  "the large gap there is in capital cities - never mind the chasm between cities and regional areas".

Across the cities, median prices were recorded at: $890,000 in Sydney, $641,500 in Melbourne, $505,000 in Brisbane, $440,000 in Adelaide, $480,000 in Perth, $349,500 in Hobart, $500,000 in Darwin and $625,000 in Canberra."

In my previous article I discussed the greater Sydney area and how I see the future property market in the areas. To access this article please click >>>SYDNEY.  With Sydney property prices unrealistically high and yields decreasing many investors are looking towards investing in key regional areas in New South Wales (NSW).  Buying property in Sydney with the median price in Sydney at $850,000 (Corelogic) and getting 2-3% yield is ludicrous for the following reasons:

1) Unless you are prepared to put down a 40% deposit or use your equity to that amount you will restrict your cash flow and you won't be able to purchase another property for some time because you are $200 to $300 per week negatively geared. To buy a property at the median price reported by Corelogic in Sydney for $890,000 and to get a return of only $550 to $600 per week is not good for cash flow.  You had better have deep pockets if you want to buy the next investment property. 

2) Expecting property in Sydney to continue its double digit capital growth rate and doubling to $1.6 million within the next seven years is a very 'big ask'. A property in a regional area costing $400,000 is more likely to double in 7 years to $800,000 than expecting a property in Sydney to double to $1.7 million.

3) All we need is a number of interest rate rises from the Reserve Bank of Australia and your deficit increases exponentially. Many economists believe that the current interest rate in Australia will increase 2 to 3 points during the next two years - mostly because of the danger of deflation. 

If you do decide to invest in regional NSW - please research where the area / town / city is in it's property cycle.  If the area/town has enjoyed good capital growth over the past two to three years it might be better to look elsewhere because property in the area may be going into its "Correction" and "Stabilisation" phase and you will be waiting another 10 to 12 years before the next "Rapid Growth" phase (which usually lasts two to four years). Regional areas usually remain in the "Stabilisation" phase for two to four years and longer than capital cities. To make a good investment decision you need to understand the four phases in the property cycle otherwise you will wait for growth and miss opportunities. For more details about property cycles please click >>> CYCLES.

The same criteria must be applied when assessing property in cities or regional towns. These are:
1) Scarcity
2) Yields
3) Price of land per sq. meter
4) Property Cycles & the Cycle of Market Emotions
5) Infrastructure
6) Business and local economy

I have studied the research and articles about regional areas in NSW from leading researchers and commentators. I do not want to go into too much detail about each area / town but I am happy to direct you to the research if you are interested in any specific regional areas.

Firstly, I will look at the Triangle of Newcastle, Wollongong and Albury-Wodonga first.

Newcastle

Michael Matusik is still upbeat about Newcastle. This is what he had to say:

"We are witnessing one of the strongest growth periods that Newcastle has ever experienced, across all price points with blue chip property auction properties having multiple competing bidders. This peak in the market has been a constant over the past 24 months now. With current low supply levels we see no early signs of flattening for the early part of 2017. The CBD of Newcastle is an ever changing environment. With substantial infrastructure development, the changing image of a manufacturing town is creating an extremely diverse town offering an   inner-city university, various businesses, ample residential unit development and tourism. A few major urban renewal projects either nearing completion or set in stone for the near future are the new court house, Newcastle Uni development, Hunter Street mall revitalisation and light rail system to open up the harbour and the CBD. The NSW government also introduced a new public transport system in December 2016, linking bus, ferry and light rail systems. Given the above commentary on Newcastle CBD, affordable housing is being sought in all suburbs that still have a minimal commute to town. Cameron Park, Fletcher, Maryland and West Wallsend are providing newly built residences within 30 minutes' drive of Newcastle's CBD, with current median prices ranging between $520,000 and $700,000."

Herron Todd White (HTW) stated in their April 2017 report that Newcastle is at the peak of the market. I tend to agree with that view. It is about the property cycle and all the indicators are that Newcastle has reached the peak and is about to undergo a correction of between 5%-10%.

Wollongong & Illawarra

The median house price in the Wollongong area is $790,000 and property has increased 17% in the last 12 months. The Herron Todd White (HTW) April 2017 report said that the strong demand is being driven by a number of factors including low interest rates, the media and the flow on effect from Sydney.

HTW goes onto say "As buyers miss out on purchasing properties they become more and more desperate and get to the point where they'll pay whatever it takes to get a listing off the market to secure a property."  It sounds as though the market is in the "Excitement," "Thrill" and "Euphoria" stages and is ready to enter into the "Correction" phase. To find out more about The Property Cycles and the Cycle of Market Emotions" click >>> CYCLES.

The proximity to Sydney has been one of the major growth factors. Wollongong's main employer, Blue Scope Steel, has hit hard times over the years. The major source of employment is in the Sydney  (The CBD is 85 km away from Sydney CBD) and the train ride is 1hour and 30 min away. Can market prices continue to increase in Wollongong? I doubt it. I believe Wollongong is at the peak and you will see a 5% to 10% correction within the next 12 months.

Albury (NSW) and its twin city Wodonga

Now that I have dealt with two regional cities north and south of Sydney I will only deal with Albury-Wodonga area and complete the triangle.

Located in the centre of the Sydney-Melbourne-Adelaide triangle this is a major service and transport hub for rural New South Wales and northern Victoria.  These two cities service a regional population of 170,000. Albury is separated from its twin city of Wodonga by the Murray River. The city has a population of 50,243 people, which is expected to grow to 68,570 by the end of 2031. Albury's Gross Regional Product was $2,806 billion in 2013, making its Gross Regional Product per worker $131,784 for the year.

Wodonga has a population of 37,345 people, which is expected to grow to 57,728 by the end of 2031. Albury's Gross Regional Product was $2.2 billion in 2013. In Albury-Wodonga the top four sectors for employment are: manufacturing, public services, retail trade, and health care and social assistance. These sectors make up 41% of total employment with 4,500 businesses in Albury and a further 3,000 businesses in neighbouring Wodonga there are plenty of opportunities for employment. The largest employers are Albury-Wodonga Health, Wodonga Campus, BAE Systems, Woolworth Warehouse, the ATO, Telstra, Mars Petcare, Masterfoods, and two Defence Bases. The estimated value of exports annually from Albury-Wodonga is $7.03 billion.

Albury-Wodonga health admits and discharges over 30,000 patients and supports over 60,000 emergency attendees over a 12 month period. The twin-cities has a wide range of educational facilities for local and regional students with 10 preschools, 11 primary schools, 10 secondary schools, two universities, TAFE College and numerous community colleges. The farming community in NSW and Northern Victoria make full use of the boarding school facilities offered in Albury-Wodonga.

All this adds up to a buoyant property market and iAlbury-Wodonga  is well worth investigating. Land is significantly cheaper than in Sydney and Melbourne. You can purchase a 4x bed / 2x bath / 2x garages, land  of 680 sq. metres plus house and land package for $380,000. Now compare this to the median price in Sydney of $890,000 with house and land packages, where the land is a mere 400 sq. metres compared to 500 sq. meters plus in this area. For a property to double in Albury- Wodonga  in about 10 to 12 years it will rise to $760,000 and command an affordable rent of $700-$720 per week. How can Sydney on the other hand double to $1.7 million and command a rental of $1700 per week? For more information on the Albury-Wodonga property market click>>> A-W PROPERTY

We use the same criteria and research data when we assess the market in other areas in regional NSW. I feel that the following areas in NSW have potential for growth in the next 5 years: .

Jindera, Mudgee, Tamworth Armidale, Griffith and Wagga Wagga

If you are interested in the regional areas / cities / towns please click >>> HERE.

DISCLAIMER

This is not financial advice. You should not act solely on the basis of the material contained in this article for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including
Asset Finance Pty Ltd.

ACKNOWLEDGMENTS:

Thank you to the resources of Terry Ryder, Property Observer, The ABS, BIS Shrapnel, Michael Matusik, Property Monitors, Colliers, On the House, Corelogic, RP Data, Residex, SQM, Herron Todd White, NAB Residential Property Survey, Australian Bureau of Statistics, Peter Wargent, Port Phillip Publishing, Economy & Markets, Harry S. Dent and the many others for the material discussed above.


Author: James Cagney
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