City versus country – it’s a question regularly asked by investors – not just ‘where should I buy?’ – but, should I buy in the city, or further out, and if so, how far out?
At the end of the day, it’s all about the fundamentals. Let’s have a closer look.
Typically, in metropolitan areas, closer to the city, transport, infrastructure, jobs, schools, Universities and city culture, the capital growth over time tends to be higher. At the same time, rental yields (the rent return relative to the value of the property) tends to be lower. So, more expensive property, a higher entry point for investors, and often the need for investors to ‘top up’ their mortgage payments each month, as the rent they are receiving is lower than the mortgage payment, or cost of ownership of the property.
In return, as we have seen in the last 15 years in major cities like Sydney and Melbourne, the capital growth rates have been very high
When investors are making a ‘loss’ in the case of ownership costs being higher than the returns, this often allows the opportunity for investors to access the tax incentive of negative gearing. If you are in a higher tax bracket, can afford to top up a mortgage and are looking for long term capital growth, rather than a positive cash flow scenario from your property investment – then you may look towards investments in metropolitan areas.
However – when looking at city versus country – there is much more to consider, especially in today’s market
The recent property ‘boom’ in a number of major cities, leaves many to speculate that this ‘city’ boom must come to an end – the fact that more and more younger first-home owner buyers and investors are being squeezed out of the metropolitan areas, and forced to invest further out. There are already obvious signs of this, as regional centres, like Newcastle, north of Sydney, experience significant growth.
Lifestyle, leisure and tourism are also playing a part
As remote working and considerations around lifestyle and tourism increase, coastal areas are on the rise. The NSW North Coast, for example, has seen considerable growth in the last ten years.
Many commentators are now suggesting that in the next growth phase, regional areas will out-perform cities, as major metropolitan areas become unaffordable for many buyers
Wollongong, south of Sydney has great infrastructure, great transport and educational institutions, and is far more affordable, but still accessible to Sydney for commuters. The Real Estate Institute of NSW recently reported a huge drop in the availability of rental properties in Wollongong. There are strong growth indicators for economic growth forecasts. Younger, educated people are moving there with their families. A beach-side and relaxed lifestyle just an hour or so from Sydney is an attractive proposition, and this is influencing property prices there.
Regional areas in some parts of Victoria have seen strong growth, such as Geelong. Also in Queensland the Sunshine Coast area has been performing well – as first home owner buyers and investors look to get into the property market, and are looking for more accessible and affordable areas
Newcastle, north of Sydney, with a major hospital, a strong economy and employment opportunities, is another area that has shown tremendous growth in recent years, as, ‘priced out of Sydney’ first home buyers and families buy further afield.
Shrewd investors looking for the next growth areas, and more affordable properties that attract a higher rental yield, and therefore a more positive return on their cash-flow – are taking a broader approach to property investment – and are keeping an open mind to the best areas for them to invest
And these days, that doesn’t necessarily mean purchasing in the city. City versus country depends entirely on your particular set of circumstances.
So it is imperative when looking at city versus country property investment, to consider the fundamental drivers of both metropolitan and regional areas, including key metrics such as affordability, positive cash-flow versus capital growth, infrastructure, employment prospects, rental vacancy rates, transport, lifestyle, and approved developments through a pro-active council. These considerations can help determine which is the most appropriate investment for you and your circumstances – regardless of whether it is in the city or not.