Regional NSW August 2017

The month in review: Regional NSW

By Herron Todd White
August 2017

Southern Highlands/Tablelands

With the continuing ripple effect from the Sydney market buoying the local market, there has been a noticeable increase in the speculative investor type of individual. This is most evident in the recent release of Retford Park subdivision close to the township of Bowral which has seen a flurry of vacant land lots coming to market. Notably these pre sales were effected in quarter 4 of 2015 and quarter 1 of 2016, with the market having strengthened a minimum 10% since this period. Some of these purchasers are of the mindset to take the gain now rather than proceed with construction of a dwelling and bring it to market, albeit that is the strategy of some investors in areas such as Renwick, (Mittagong) Darraby (Moss Vale), continuing to ride the wave from the Sydney market.

The hamlets of Colo Vale and Hilltop have seen an increase in medium term investor activity, with those locations being close to the freeway and producing strong rental returns.

Likewise, across the Southern Tablelands there has been a modest amount of speculative investor activity in the new subdivisions close in to Goulburn as well as some of the northern fringe locations of the region such as Marulan, where investors have purchased blocks, constructed dwellings and on sold.

NSW Mid North Coast

Investor activity on the Mid North Coast has been hot for an extended period now, with locals and out of town investors fighting for similar stock. These are generally well solidly constructed dwellings or units that require little maintenance and appeal to the wider rental market. With the mid to lower end of the markets being the most sort after. While local investors tend to stick close to home for their investment purchase, out of town investors are happy to look up and down the coast chasing returns.

Some savvy investors within Port Macquarie and coastal towns are not only seeking yields but are also looking within the higher capital growth areas such as Shelly Beach and Lighthouse areas within Port Macquarie as well as the coastal villages to the south.

This increased activity has been sustained for an extended period now, which is pushing dwelling prices up and a steadying rental market is creating slightly reduced yields. This is moving some out of town investor to other localities outside of the main regional towns where prices are lower and yields greater.

The extensive release of land and the construction of new dwellings in the area is also attracting more cashed up investors, with an ample supply of duplex and dual occupancy style dwellings built on larger lots. This is maximising the possible rental returns via dual income streams.

We do note however that investor activity is beginning to slow somewhat with rentals returns steadying due to increased supply, and lending institutions tightening lending policies for investors. We see possible implications being a steadying of the market with less out of line sales occurring from hot bidding wars. While growth in the market will be maintained, the length of time on the market may increase. Whether this is bump in the road or a return to a more stable market, it’s yet to be seen.

Advice to the investors thinking of purchasing is to look for good return areas, do your research and focus on the right type of property that best suits your financial and lifestyle goals.

NSW Central Coast

Like so many other regions across the country, investors have a presence here within the Central Coast region of New South Wales. They are found in the northern and southern ends of the region, toward the middle and along the coastal strip.

In our region, we think of investment property types as falling into not two but three categories: traditional units, traditional houses and the holiday letting segment of the market.

Units themselves are located close to the public transport nodes or the beach areas. As a developing or evolving region, there is a mixture of old and new units available to the investor and we can’t say with any certainty which is preferred by investors, but we think it’s more likely a combination of price, location and age of the unit in addition of course to the return.

A popular location for units at present is within the Gosford CBD where a number of new developments have been recently completed, are under way or are scheduled for commencement. In our discussions with marketing agents and developers, pre sales and off the plan purchases have been strong and at a whole new level of price point, some of which we think are extraordinarily bullish by local standards. At the moment, there is very little availability of this new stock, but we expect these stock levels to free up a little in time through the attrition of buyers as new projects progress, but buyers change their minds or financiers change theirs – it’s an interesting juncture we have reached in the marketplace. We also wonder what effect, if any, there will be on the value of older units – will values drop a little as seen in previous cycles or will they remain stable?

Away from the Gosford CBD, pre owned units are always popular in beachside locations such as Terrigal, Avoca Beach and The Entrance. An often seen strategy by investors involves a hybrid of use by the owner. That is, owners will use their properties as weekenders during the off season and holiday let them during peak periods. This has proven successful for many. Of course, there are a number of units used exclusively for holiday letting or short term stays and this provides a very good level of return.

Traditional housing as an investment vehicle has always been popular in our region.

Investors in this space have many guises ranging from first time buyers, mum and dad investors and professional investors. From what we know, there doesn’t seem to be an area or location of choice for investors in traditional housing – it is spread right across the region.

In terms of price points or price bands, we think investors fall broadly into two types – those who will only buy cheaper properties that they wouldn’t necessarily live in themselves but are happy in the knowledge that they are providing a roof over someone else’s head. We think some genuinely believe they are providing a service to the community while building a portfolio of properties at the same time – and good on them.

The other type is a little more discerning with their choices in that it will be a better quality dwelling in perhaps a better location and is likely to be a property they could live in themselves. This will involve a higher initial outlay with the strategy of having a better return and a more predictable capital gain. We see these investors as typically being the mum and dad type of investor with a long term goal in mind of securing a comfortable future for themselves based mainly on the notion of paying off the mortgage and making that all important capital gain.

Of course there are other types of investors, but these are the main two that we see. Others include the professional investors who see investment in property as a business and structure their portfolios accordingly, others who simply collect properties, those who seek to add value and hold or divest and those that are the futurists.

Each investor has a story, but from our discussions and involvement with investors, their main point of investing in property is for the return or capital gain or both.

We don’t believe there are any locations that experience more investor activity than others and we say this on the basis that Central Coast investors are spread across the region. But there is commonality in that the less expensive parts of any suburb are usually targeted.

At the minute, there has been a definite slowing down of investor activity across the region and it’s no secret that this is a direct result of the regulator imposed changes and restrictions on our lenders. This means that owner-occupiers are making a comeback. This is a situation that will probably become more noticeable as a result of the renewed First Home Buyers Scheme which places direct competition in a segment of the market also favoured by the investor.

Opinions vary as to whether investors have a positive or negative impact in our region. For our part, we consider the region needs investors to keep things moving and evolving. We believe the marketplace needs diversity amongst the participants to aid this.

The biggest challenge faced by current and future property investors is where they should be looking for their next purchase. What we can see from a Central Coast perspective is that it could be any number of locations, such is the choice available. It could be a unit near the railway station, hospital or shops, a unit next to the beach, a house in the suburbs or a value adding opportunity. At the traditional investor segment of the market (low to medium price bands), returns are generally comparable and it is a question more largely answered by the individual investor’s strategy of a short, medium or long term horizon.

Of all the suggestions we could make though, the standouts are to do as much research as needed and seek a totally independent advisor.

Tamworth

The Tamworth region has a strong investment sector with both local and non-local investors taking part. The trend for local investors is to buy a safe property (good location, average rent return and lower risk). On the other side we see non-local investors being more risky, with a focus on higher rent returns which tends to be properties in less desirable areas with returns of up to 8% gross but less capital gain. There has also been a notable increase in non-local investors investing in new subdivisions that are entirely aimed at outside investors. These sub-divisions become a less desirable location due to the lack of owner-occupiers and so far have appeared to enjoy little in the may of increased market value. Local investors operate within a large price range depending on their financial capacity with investments occurring from around $200,000 all the way to $600,000. Non-local investors are a bit more constrained with their investments with the lower bracket being around $150,000 (parts of West Tamworth) up to around $500,000. Each price point represents a different goal for the property with the lower end focusing on higher rental yields and the upper end focused on capital growth.

With Tamworth continuing to expand and doing quite well, the strategy of medium price point with average rental return but opportunity for capital gains seems to be the better strategy of the two. The reason for this is that with an average return of 5% to 6% gross on these properties, the return is still better than capital cities and it provides less risk than higher yield properties. Over the past 12 months we have seen an increase in investor activity within the Oxley Vale area as there is opportunity to buy both new and established homes within an expanding suburb that is not too expensive. Nice established homes can be purchased for $300,000 and enjoy a return of roughly 5.5% gross. The continual expansion of Tamworth makes investors a vital part in allowing it to grow, as more people come to town and require accommodation. At this time there has been minimal to no impact on first home owners from investors, due to the affordability of Tamworth.

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