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You wouldn’t put all your eggs in one basket when it comes to other assets, so why confine your investment properties to just one of the many markets in Australia?
If you’ve started your journey as a property investor, then you probably hope to one day amass a property portfolio. Currently, according to the ABS, only 28.8% of investors own more than one property, even though the benefits of compounding annual growth and multiple sources of income are well recognised.
What is sometimes overlooked from the conversation is the role that investing in interstate property can play. We often have a preference to favour investment opportunities in our own city due to comfort factor, and that can be a good place to start. However, to maximise returns it doesn’t have to remain that way.
It's no secret that the pandemic has changed not only the way we live, but where we live. Many people, supported by remote working and attractive lifestyle opportunities, are making the move to regional and interstate locations. This is fuelling significant demand outside of the traditional investment areas.
Stepping outside your comfort zone and casting your net wider increases your chances to optimise your returns. Additionally, an interstate market might be more financially accessible, for you to make your first investment or find a property that suits your investment strategy. Alternatively, it could be one initiative to diversify a broader property portfolio.
For investment purposes, whether you’re at the start of your journey, or a seasoned professional, location is everything.
Sydney is typically seen as a lead indicator in the Australian residential property market, the table above shows that Sydney house prices have increased 28.9%, more than any other market. As an investor, it’s important to not only look at where growth has been, but where growth is coming from. For example, Brisbane saw solid growth in 2021, and sits poised to build on this further with the 2032 Olympics and strong infrastructure pipeline expected to put upward pressure on housing stock.
This is where it becomes important to isolate local factors affecting each city. Differences in state economies play a role, in addition aspects like housing supply, infrastructure, tourism, and population growth which shape variances in rental yields and property price growth.
As an investor, it’s important to not only look at where growth has been, but where growth is coming from.
As you would have heard with other asset classes, concentrating all your capital in one position is a risky approach. Sure, it may help you maximise gains when everything is working in your favour. But if things don’t go to plan your exposure is heightened. As such, interstate properties will help you diversify your portfolio and mitigate risk.
The premise behind this is that investing in property in another state can smooth out market variances. Each capital city is at a different cyclical position. Using an earlier example, an investment property in Adelaide, which sustained growth in recent years, would have helped you hedge against a slowdown on the eastern seaboard. Further back, if you had multiple properties in Perth, the end of the mining boom would have left your investment portfolio reeling. All the while, property prices in Sydney soared.
Hence, each capital city is an individual market, having its own unique place in the broader Australian property cycle. Because of this, each market has the capacity to strengthen and temper at different times, and by different rates.
This graph shows the disparity in growth, with Brisbane and Adelaide diverging from Sydney and Melbourne.
As you would with a property in your own city, investing in an interstate property requires extensive local market research. DPN’s research team can assist with this, providing comprehensive property data at a regional and local level. The differences between markets should not be understated or overlooked, particularly as far as employment levels, vacancies, yields, types of renters and more.
Buying an established property sight unseen can be a risk, as you may not get a true feel for what you are investing in. Be prepared to budget for flights, or otherwise entrust an advocate on your behalf. You will need to pay for a property manager to handle the day-to-day affairs associated with renting the property. DPN can help with their team of highly experienced property managers, and the cost of this is tax deductible.
There are also differences in legislation and regulations to be wary of. This spans from land tax, to stamp duty, renting terms, and contracts among other matters. For example, investing solely in one state could mean that you go over the land tax threshold, resulting in you starting to pay a land tax. This could have been prevented if purchasing properties in additional states. Your DPN property strategist can help to model out the different costs to purchase property in different states.
The lesson to take away here is that you shouldn’t let your comfort zone or fear of the unknown prevent you from investing interstate. Whether it be means to access the market, find the right opportunity, or mitigate your risk, there is a strong case to invest in property outside your city.
