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Regional Properties Do Not have What it Takes

regional propertiesProperty in remote locations might look good for sometime but they only flatter to deceive. Pete Wargent for the Property Update writes why they fail time and again. Wargent starts with the example of Cairns where high rental yields and depreciation benefits were cited as great reasons for long time positive cash flow. GFC reduced the Cairns property prices to rubble, washing away their value by more than 30%.

Regional properties may thus become a recipe for investment disaster anytime. Contrarily, investing in capital city properties or in urban dwellings is a highly sensible idea. In the context, strategically located properties exhibiting diverse factors of growth should be preferred.

An investor may be held in good stead if he observes the demographic trends and sometimes invests counter-cyclically.

Why experts back regional properties

There are reasons why regional properties are being backed by experts. Sometimes, it’s their vested interest (either a commission from developers or a wish to promote areas where they have themselves invested). At times, experts are also lured away by high rental yields (which are anyway part of only the initial phase).

Free availability of land a negative factor

Land is never valued at a premium (they are abundantly available) in regional areas and statistics tells us that capital growth is increasingly being witnessed in places where there is shortage of land (capital cities).

Moreover, capital growth cannot be too high for regional areas as median prices skyrocket too quickly.

Regional properties may not see a field day for some while

Regional properties did rise during the time of ‘borrowing binge’ but the motion has been arrested long since and inflation and interest rate are at their historical low levels now.

You can read the original article here.

Why are the McMansions fading out?

I am a very strong lobbyist for urban, capital city properties. Don’t you think there is a reason why the suburban McMansions are fading out or why the Chinese tourists are looking begrudgingly at their regional investments today? Given a chance, they would trade those investments for a small piece of Sydney land.

Red Alert on Single-industry economies

Any place where there is free availability of land, supplemented by a paucity of construction measures, cannot be your investment location. Moreover, regional properties are largely part of single-industry economies- A clear danger zone for investments unless you intend on a harakiri.

Do you think regional properties can provide equivalent returns to Sydney properties?