Regional VIC August 2017

The month in review: Regional VIC

By Herron Todd White
August 2017

Geelong

Due to the high median house price in Melbourne, some investors are now shifting their attention to Geelong. Geelong is attractive to investors due to its proximity to Melbourne, public transport options, education, the beaches and strong growth over recent years.

Many people commute to Melbourne every day from Geelong, therefore the demand for properties close to a railway station is high. 57 Carr Street, Geelong (see below) is a good example of the type of property investors are looking for. The property sold for $470,000 in March 2017 and was rented out in June for $400 per week reflecting a yield of 4.4%. It is also important to note that the property sold in January 2015 for $416,000.

Deakin University is another key reason why investors look favourably upon Geelong. In the suburb of Waurn Ponds, capital growth and yields are strong. 60 Willesden Drive, Waurn Ponds sold for $600,000 in April 2017 and was rented for $500 per week in June 2017, reflecting a yield of 4.33%.

The advice for investors looking at the Geelong market is to look for properties close to railway stations and Deakin University. Properties in these areas tend to have strong capital growth and good yields. With possible railway upgrades along the Geelong to Melbourne route on the horizon, property in Geelong will continue to be in demand for people looking to live outside Melbourne.

Bendigo

Investors from the eastern capital cities of Australia could look at regional centres such as Bendigo with great interest due to the significantly lower buy in prices.

Generally non-local investors are seen to pay above market prices for any type of property investment. New houses in new estates appear to be the most popular product with investors. Two-storey town houses located within the urban centre of Bendigo are also a sought after product. The most common price point for investors is the $300,000 to $400,000 bracket which is comparatively low compared to most metropolitan markets. The most sought after areas by investors are considered to be any of the growth corridors of Bendigo including Epsom, Maiden Gully and Strathfieldsaye. Inner urban areas in demand include the long established suburbs of Golden Square, Kennington and Flora Hill. These areas are within a short commuting distance of the Bendigo CBD. La Trobe University is located in Flora Hill and is the driving force behind investor demand in the Flora Hill and Strathdale areas.

Non-local investor interest has declined over the past five years which appears to have coincided with the down turn in mining. This reduced interest has been of little to no impact on the local market. If there was a significant decline in investor interest, possible outcomes could include a slowing of new development in the growth corridors as well as a general uplift in rent returns. This could subsequently result in an uplift in overall property prices, however this remains speculative.

For those interested in investing in the Bendigo market do not rely on short term capital growth; instead pay more attention to yields and future development potential.

Echuca

Typically investors in anything but central Echuca are looking for yield supplemented by capital growth rather than the other way around in our local markets. Changes to tax laws around depreciation have also slightly reduced the amount of items that can be claimed for dwellings in the mortgage belt. Nevertheless many centrally located residences are being successfully operated as short term accommodation (AirBnB and established holiday rental management companies along with privately owned and managed residences) with most reporting superior returns above and beyond permanent accommodation.

Mildura

Investors have always made up a significant portion of buyers of residential property in Mildura, with buyers attracted by relatively good rental yields and a growing local economy and population. In recent times, investors have mostly purchased modern 3- or 4-bedroom dwellings in the range of $250,000 to $350,000. These properties are generally attractive to tenants and often offer potential to claim some depreciation deductions.

While hard to be precise, we estimate that investors could currently make up to 20% of buyers. The percentage of investor buyers appears to have declined over the past two to three years, due to the absence of some out of town builders and promoters who had been active in building homes targeted at investors. This activity peaked in around 2013 and helped in providing additional rental accommodation at a time when there had been a shortage.

Gross yields of over 5% and up to 6% are currently achievable and even though buyers are looking for a combination of capital gain and yield, the yield is probably the aspect that influences the decision to buy in Mildura rather than a larger centre. Slightly higher yields are attainable in some smaller satellite towns such as Red Cliffs, however we would expect there to be less opportunity for capital gain in these towns.

Investors are also attracted to blocks of units which provide higher yields than stand alone houses. Unit complexes containing three or four units typically sell for between $400,000 and $475,000 and these investments appeal to buyers due to their expected low risk of vacancy.

Any slowing in investor demand would not be expected to substantially impact on the local market. The local economy is currently enjoying a period of stronger conditions and we expect to continue to see steady population growth and demand from owneroccupiers, particularly while interest rates remain low.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.