WA regional property markets present unique opportunities for investors
Western Australia’s regional property markets are presenting unique opportunities for investors, including the much maligned Pilbara mining towns, however these are not without their risks, according to a new report from Momentum Wealth Research Division.
Residential Regional Property Report: Western Australia analysed the state’s Pilbara, South West and Goldfields-Esperance property markets.
The research report outlines the main pitfalls and opportunities on offer to property investors who are considering these regional locations.
The main benefit of the Pilbara is the high rental returns on offer with rental yields rising back up to between 7-9% in some towns, which is similar to levels seen during the resources construction boom.
In the South-West, the growing demand from people seeking a sea/tree change is expected to help underpin capital growth, while investors can also take advantage of the region’s burgeoning tourism market and use alternative strategies, such as short-stay websites like Airbnb, to boost rental yields.
Meanwhile, the Goldfields-Esperance region is benefitting from a strong gold price as well as the growing interest in lithium, a key ingredient in batteries used for smart phones and to store energy from wind and solar farms.
Pilbara market starting to draw buyers back
Property prices in some Western Australian regional towns have dropped sharply in recent years, specifically those in the Pilbara, following the end of the resources construction boom.
The average house price in Port Hedland, for example, dropped from more than $1.2 million at the peak of the resources construction boom in 2013 to less than $400,000 in 2017.
Those who bought properties in mining towns at the peak of the market face significant financial losses, however the research report explains that the prevailing conditions present opportunities for investors who are comfortable with the risk.
While house prices in these mining town are unlikely to reach the highs seen during the resources construction boom in the near-to-medium term, if ever again, prices are now below replacement cost in some towns and yields are very high. Furthermore, sales activity has picked-up over the past year after buyers abandoned the market between 2014 and 2016.
Comparing the year ending March 2016 to the year ending March 2017, sales transactions have jumped increasing from 89 to 203 in Port Hedland, 150 to 251 in Karratha and from 6 to 57 in Newman.
However, for those considering investing in the Pilbara, it’s important to understand the risks and have significant cash buffers set aside in the event of long vacancy periods.
Regional property not suited to inexperienced investors
Over 530,000 people reside in regional Western Australian making up about 21% of the state’s population.
As is the case with capital city property markets, investing in regional property requires extensive market research. However, rural locations generally carry higher risks due to greater volatilities in the supply and demand fundamentals that influence property prices and rental returns.
Investing in regional locations isn’t typically suited to first-time investors, and is a better proposition for more experienced investors who have a portfolio of existing residential properties.
With adequate research and careful decision making at the right stage of one’s investment journey, regional property can prove to be a good investment and generate wealth through income earning and capital growth avenues.
To download a free copy of the report, Residential Regional Property Report: Western Australia, simply follow this link.