Morning Briefing: As Sydney slows, does regional NSW hold any value for investors?

“The biggest myth in real estate is that you won’t get capital growth outside of cities”... Land sales in Melbourne hit new peak...

As Sydney slows, does regional NSW hold any value for investors?
For investors looking to New South Wales in recent years, the majority of attention has been aimed at Sydney and rightly so, as the harbour city has enjoyed a stratospheric run of capital growth.

But as prices move out of reach of many and more and more signs mount that the boom may be running out of steam, does that mean investors should be turning away from NSW as a whole or are there other pockets of value to be found?

According to the Australian Bureau of Statistics, at the 2011 Census, Sydney’s population was around 4.3 million people, meaning the rest of NSW is home to just under another 3 million people and Matt Knight, head of buyer’s agency Precium, believes there are viable investment opportunities across the state.

“The biggest myth in real estate is that you won’t get capital growth outside of cities,” Knight said.

“What I tell my clients is that you won’t get the same consistent capital growth, it will come in quick spurts and then there will be longer periods where it flattens out,” he said.

“The coast is always popular, but there are other areas where it’s possible to find locations that combine capital growth and positive cash flow.”

For those looking to a regional area of the state, Knight said his advice is usually to focus on the larger regional centres, however there is no guarantee that will bring success.

“The majority of the time I’d recommend largest town possible, when you get to the smaller towns that are dominated by one or two industries that’s when you start seeing risk increase,” he said.

“Even the larger towns can come with some risk, especially ones that are dependent one something like mining or a particular type of agriculture. There’s a few places in northern NSW that have gone from boom to bust with the coal mining industry.”

While that ability to go from boom to bust may scare some investors off, Knight said with a bit of foresight that can be avoided.

“You do need to do your research and due diligence.

“Things like knowing whether the population is increasing or decreasing are really important. For me there’s a whole range of metrics I use when I’m looking at a regional area.”

That sentiment is one supported by Alan Fox, director of the Central Coast based buyer’s agency Propertunity, who said in some ways investing in regional areas is no different than buying in the bigger markets.

“To me it’s not a big risk, I’ve been investing up here for 25 years and I haven’t had an issue,” Fox said.

“If you subject your purchases to the right selection criteria, making sure you’re not overpaying and buying in areas with good vacancy rates, those sorts of things then you should be ok,” he said.

Fox said the Central Coast has been benefitting from Sydney’s performance in recent years, which has led to an increase in investor activity – many of whom seem to have done their research.

The area seems to pick up from a bit of ripple effect from Sydney and the Central Coast as a whole has been performing strongly, prices have probably been pulled up by 20% or so,” he said.

“The areas that are being targeted and the ones that are really doing well are the ones in close proximity to transport, for example areas that are near train lines or with good access to the M1 Motorway.”

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Land sales in Melbourne hit new peak
Greenfield sites in Melbourne are seeing a boom in popularity, with new research showing sales over the September quarter far eclipsed previous peak levels.

Prepared by research firms Research4 and Charter Keck Cramer in partnership with the Urban Development Institute of Australia (UDIA), the National Land Survey Program’s Melbourne Greenfield Market Snapshot has revealed that over the September quarter almost 1,900 greenfield lots were sold per-month in Melbourne.

Those figures are 25% higher than the previous land sales peak, which occurred in late 2009.

While greenfield sites may becoming more and more sought after in the Victorian capital, that popularity hasn’t resulted in a similar price spike, with the median price for a lot in Melbourne increasing by just 3.4% over the last 12 months.

UDIA Victorian president David Payes said the current greenfield conditions were a positive for Melbourne.

“It is encouraging that Melbourne continues to outperform other cities with its record sale volumes, high stock release levels, and relatively low prices,” Payes said.

“In terms of pricing, Melbourne has benefited from the high volumes of lots released and competition between developers due the release of numerous Precinct Structure Plans by the previous government,” he said.

According to the report, the median lot price across Melbourne for the quarter was $211,000, making them rather affordable in comparison to lots in other areas of the country.

The Melbourne median price is $250,000 below Sydney’s median, $50,000 below south east Queensland’s and $40,000 below Perth’s.

Melbourne’s average value rate is $493 per square metre (p.s.m.) compared to metro Sydney at $1,022 p.s.m, Perth at $625 p.s.m. and SEQ at $530 p.s.m.

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