“You may find a great out-of-town deal in the paper … but what you don’t know is that the house is on an abandoned mine shaft and located next door to a bikie gang”
“The key is not to rush into it. If you invest interstate, it’s a long-term investment, not a short-term one”
“We’ve been dealing with an agent who does leasebacks in Sydney. He did some research and gave us a list of names. We had an interview with some of them and found out a bit more about their work ethic”
Many property owners in the eastern states could be forgiven for thinking that the whole country is suffering a similar slump. In fact, while markets in Sydney and Melbourne are bottoming out, the reverse currently holds for other locations.
Property prices in each state are driven by a range of underlying fundamentals and frequently, different markets appear to run in counter cycles, that is when one market is booming, another may be relatively flat.
Tim Lawless, research director at PRD Nationwide, hesitates to use the term ‘counter cycle’, but acknowledges that the eastern and northwestern Australian property markets are indeed travelling differently.
“Within residential, counter cycles exist between major capital cities on the eastern seaboard and the resource intensive regional areas including Darwin and Perth. I don’t know if I’d say it’s a counter cycle because the resources boom is artificially extending the cycles there,” Lawless says.
A big advantage of the internet is that ordinary souls can now access a seemingly endless array of investment and other property-related income. More and more services are available online, such as virtual property tours, mortgage applications and even conveyancing.
Research, research, research!
If there’s one thing the experts agree on, investing in other states will only prove a rewarding exercise if you’re prepared to do a good deal of homework initially.
“The most important thing is to do your research and build up your knowledge of particular geographical areas that appeal,” says Tony Brasier, president of the Real Estate Institute of Australia. “You can do a lot of homework on particular locations on the internet. There’s enough information out there to find a good spot.
”Investing interstate should not be viewed as a short-term, speculative fix, Brasier says. “The key is not to rush into it. If you invest interstate, it’s a long-term investment, not a short-term one. Taking a seven to 10 year view, especially when investing in counter-cyclical markets, is a good strategy.
”Whether you consult independent research reports, or talk to local agents, residents or other investors, the actual research process should follow a top-down progression. You’ll need to locate particular regions or investment hot spots where you believe there is potential for rental growth and capital gain. A further intrinsic factor is the demand for rental properties in the area. Strong rental demands increases the likelihood that your property will be continuously occupied.
The big picture
Housing markets are largely underpinned by prevailing economic conditions in any region. Put simply, greater economic activity brings more jobs, which attracts more people who will need accommodation.
In assessing any given region, it’s important to build up a picture of rapidly expanding industries that are likely to feed into economic growth. In some areas, including far north Queensland, tourism is driving the economy, whereas other regions are manufacturing-led.
Besides economic and employment growth, socio-economic and demographic factors play a key role in shaping future demand for housing. Along with your economic picture, you should aim to concurrently gather intelligence on the sorts of people who will be likely move to the area in future? Who will be renting? Will they predominantly be families who will want to live in houses with backyards, or singles who prefer low-maintenance apartments?
Run a fine-toothed comb over your chosen region. What amenities are currently in the area, including schools, shops and entertainment? Are there adequate road and public transport links, or planned future improvements?
You’re looking for three things – capital growth, yield and occupancy prospects. The factor you choose to favour, if any, comes back to your initial investing parameters. “Drivers of property are rental yield and capital growth. Property has provided a reasonable mix between the two,” says John Welch, head of research at Property Investment Research.
The optimal mix between growth and income also depends on the state of the broader housing market, he adds. “It used to be all about capital growth when the economy was booming, but unless there is a huge amount of economic growth to come, income will start to become more important than capital growth.”
Hands on or hands off?
With so much business now taking place over the internet, it’s tempting to think that you could do all of your research, find a property, an agent and other professionals, and execute an entire purchase transaction online.
While this is technically possible, experts list a host of reasons why it’s wise to visit an area in person before you sign on the dotted line. “For example, you may find a great out-of-town deal in the paper, where the numbers seem to stack up, but what you don’t know is that the house is on an abandoned mine shaft and located next door to a bikie gang,” says Steve McKnight of propertyinvesting.com.
Besides, there is an upside to those occasional visits to check on your investment, Welch says. “You can claim your visits to an investment property on tax – what better excuse to take a twice-yearly holiday to inspect your property?”
Retaining an agent is a must if you own property that is located some distance from where you reside. “You don’t want to buy an investment property without retaining a property manager,” Welch says.
Many property managers are inexperienced, so try to choose someone that owns their own rental properties so they can relate to your situation.
As with any property investment, carefully selecting real estate and legal professionals is central to ensuring that the purchase process runs smoothly. “Open the real estate pages and see who has the most listings,” Welch recommends. “They will have a lot of properties on the market because they are good at what they do. At lest five years’ industry experience is preferable. Make sure they are committed to building their business.”
Local knowledge is also fundamental, according to McKnight. “Local agents have the best knowledge of their local area. This can be worth a fortune, as you can use local agents to quickly educate you about the good and bad areas of town, unique planning regulations, local business development, etc.”
Hiring local legal or conveyancing professionals to manage transfer of titles is also a must. Legislation requires that your conveyancer be located in the same state as the property being purchased. Moreover, the legal side of property does vary from state to state.
“Each state has a different legal system, so you might not know which documents you require. In Queensland the system operates electronically, so there is no physical settlement and you don’t receive a paper certificate of title. NSW and Victoria are moving in that direction, but they still have a physical settlement,” says Steven Healy, head partner at Gadens Lawyers property group.
Investing in property outside your immediate sphere of reference does carry an additional risk factor, but potential pitfalls can be thoroughly mitigated through careful research. Taking time to visit the region and examine in detail its future economic prospects, as well as arming yourself with local knowledge can help you uncover some of Australia’s best-kept investing secrets.
Hot spots:Greater Perth, especially along the south coast and Mandurah. Enormous growth area – has been dubbed the ‘Gold Coast’ of the West.
Northwest WA – around Cable Beach and Broome. Still quite remote but is popular with those looking for a sea change.
Hot spots:Once-sleepy coastal areas on the Capricorn Coast, including Cooee Bay, Emu Park and Yeppoon.
Mackay – is the main services town for the Bowen Basin, which is a large coal seam. Rapidly expanding industries include education, entertainment, food and tourism.
In the actual mining towns near Mackay, vacancy rates are pretty much nil. People are predominantly employed on a secure basis, and have high disposable incomes.
Darwin – particularly around the bay side areas.
Median house prices have grown in excess of 20% per annum for the past two years, driven by the resources boom.