Is rural Australia the next investment property boom zone?

Is rural Australia the next investment property boom zone?

May 31, 2011

With many property investors taking advantage of the threat of rising interest rates and other financial factors keeping first homebuyers out of the market, Australia’s rural areas are emerging as an investment hot spot.

With rental yields on the rise as vacancy rates drop to record lows nationwide, and a wide range of gearing options and investment loans available, property investors are looking to opportunities far from the madding crowd.

The mining boom has no doubt contributed to the increased investment activity in rural areas, but other factors such as government-planned infrastructure and spending have also boosted regional economies.

Mudgee in NSW has benefited from the mining boom and offers employment opportunities for those seeking a tree change. Property prices are rising quickly from their previous holding point of the late $100,000s.

The Avon Valley in Western Australia is also an area of growing interest to potential investors. Mortgage broker Leanne Clune reported that investors currently make up 40 percent of her home loan enquiries, a figure that has doubled since May last year.

In the Northern Territory, Darwin’s rental yields are the strongest of all capital cities according to RP Data figures. Furthermore, figures from SQM research reveal that in March, 1,075 houses and 643 units went on the market in the Top End’s capital, creating an environment ripe for investors.

Loan Market’s Leanne Clune has this advice to offer:

Which regional areas are attracting the greatest interest from potential property investors?
“Bakers Hill, York, Northam and Toodyay are attracting interest from property investors.”

Any suggestions on which areas represent good value for money with great return potential?
“All areas are good value for money at the moment, and are significantly down in price from last year.”

What factors are driving investment dollars in this direction?
“Lifestyle factors including people wanting to move and have a semi-rural lifestyle. Also, the prices are significantly lower than the capital city Perth and the rental returns are very good.

What sort of house prices are available in various regional areas?
“You can still purchase three bedroom homes in Northam (WA) for under $200,000 with a rental return of between $200 and $250 per week depending upon location and condition. Smart Property Investment’s top rural investment towns”.

South Australia: Ceduna
Median house prices: $272, 5000
Apartment: n/a

New South Wales: The Hunter region
Median house price: $380,000
Apartment: $349,000

Western Australia: Bunbury
Median house price: $369,000
Apartment: $349,000

Queensland: Gladstone:
Median house price: $429,000
Apartment: $349,000

Median house price: $237,000
Units: $237,000.


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Learn more about home loans

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out.