City vs Regional Property
Urban properties have historically been favoured by investors seeking capital growth returns. Around 70% of Australians live in cities, and population inflows – interstate and overseas – are typically concentrated in urban areas. Thus, demand is high from both property purchaser and renters.
Capital growth is typically more consistent in urban areas, particularly in ’blue-chip’ suburbs within easy reach of the CBD. In several capitals – such as Darwin and increasingly Sydney – this is exacerbated by supply issues, which drives capital growth higher but presents affordability issues. This has been mitigated by the appearance of more high-density housing, although some investors are sceptical about the capital growth potential of large tower developments, due to their extremely low land component.
Due to their higher capital growth, city properties are usually negatively geared – indeed, positively-geared city properties are something of a rarity. On the flip side, vacancy rates are usually extremely low due to high demand for properties, and there is usually little trouble letting well-positioned properties.
Regional areas have been seen as the poor cousin to cities. However, the resources boom has seen investors take more interest in regional areas, as population inflows energise formerly sleepy rural towns.
Areas that have experienced significant capital growth are typically located near mining and energy projects, such as the Pilbara region in Western Australia, Roxby Downs in South Australia, and the Surat and Bowen Basins in Queensland.
However, these are not without risk: often, these areas are dependent on industry, and if there is a slowdown in demand – such as during the GFC – the local markets can suffer. Coastal areas are also the other regional markets that prove most popular, due to holiday letting and sea-changers. Again, these can be volatile depending on economic circumstances.
Regional housing is usually much more affordable than urban property, and is often cash-flow positive. Capital growth is often much lower, however, and vacancy rates can be high