The dangers of investing in regional markets

By Nila Sweeney

While many investors swear by the low entry costs and positive cash flow opportunities of regional towns, some experts warn that these areas are not all that they’re cracked up to be. 

While it’s true that regional towns generally have properties available at a lower entry price and provide a higher yield than city areas, there’s a good reason for this.

“It’s predominantly due to slower overall capital growth,” says Judith Taylor, buyer’s agent and principal of Select Property Finder in Newcastle.

“Because these areas don’t have the land scarcity of the larger towns and capital cities, the market can sit relatively flat for many years before there is an increase in growth.”

For those investors who have a long-term investment strategy and can afford to wait 10-plus years to see significant price growth, this may not be an issue.

But for any property owner seeking a quicker profit turnaround on their investment, Taylor warns that regional markets may not be the right fit.

“Care must be taken when considering buying property in a one industry town,” she adds. 

“Although the yields may be positive and seem attractive, if an unexpected external factor occurs that directly affects a sole industry or mining specific town, employees could lose their jobs and in the worst-case scenario, your valuable investment could become part of a ghost town.” 

Taylor says investors who are looking at property outside of their own hometown should double their efforts when it comes to research, to ensure they’re not misled.

“I recently did some research on a property at the low end of the market in a country town,” she said. 

“The yield was around 18%, which on the surface appeared extremely attractive. As it turns out there are no property managers in the area, meaning that landlords need to self manage. 

A self-managed property can be a riskier proposition ­– certain insurers won’t insure landlords who don’t use a professional property manager, for instance – so this type of investment can wind up being more difficult to manage.

“This is not necessarily an attractive option, especially if the town is located several hours away from where you live,” Taylor adds.