Real estate prices in most provincial towns increased for more than two years after the bubble burst in Melbourne – and continued to increase, up until last year, when high petrol prices, talk of hiking interest rates, and apprehension about where to invest, took the shine off the market.
While investing in provincial towns can bring with it huge returns (well above those being achieved in Melbourne over the last three years), it also brings with it considerable risks.
Unlike investments in Melbourne, rents in coast and country property aren’t very high relative to the property’s value. It certainly won’t be enough to make a dent in any mortgage repayment.
A three bedroom family home a short walk from the beach in Cowes Phillip Island may be valued at $350,000, but fetch only $175 a week (a yield of around 2.6%). By comparison a one bedroom apartment in Melbourne’s inner city, valued at around $250,000, can command a weekly rent of around $220 a week (or a yield of 4.5%).
To make money in the coast and country, investors rely on a combination of above-average capital value growth, and any seasonal rental opportunities.
Government initiatives like Make it Happen in Provincial Victoria are successfully attracting Melburnians from all age groups to pack up their suburban lives, as are private developers, who are spending billions of dollars in major developments outside the Melbourne metropolitan area.
The question investors are asking today is: where are these sea and tree changers going to hang their hats? Where is the next Sorrento, or Daylesford? How do you avoid a coast or country dud when you’re only exposure to the township has been the occasional weekend?
“People realize that there are areas of real estate in Victoria that have become as attractive an investment as Melbourne,” said buyers advocate, Christopher Koren of Morrell and Koren. “The on-sells we’ve seen over the last few years have always been considerably above what investors paid for them.”
The state’s biggest coast and country real estate agents agree that property prices hit lofty heights for a while but, like Melbourne, they have since corrected.
Many of the up-and-coming areas of two years ago, such as Macedon which reported sharp increases in value at the time, have reported only minimal value growth this year, according to local agents.
“With more properties coming up for sale, the market no longer favours vendors like it did between 1999 and 2004,” said John Keating, managing director of Keatings Real Estate in Macedon. “This is providing good buying opportunities for counter-cyclical investors.”
He said the Macedon market has become patchy, with the strongest demand for high quality lifestyle properties which are “priced right”. He said B-grade properties which are overpriced by vendors could languish on the market for some time.
Portsea, the playground for Melbourne’s bourgeois, is another market to report a surprisingly modest 2006.
“Generally speaking, there’s been a lack of discretionary spending in Portsea this year, and the sentiment is one of a bit more caution,” said buyers advocate David Morrell, director of Morrell & Koren. This is supported by recent Real Estate Institute of Victoria figures, which showed median house prices in Portsea fell 5 per cent for the year. The top end continued to perform well.
It’s a similar story in Bright, about 300 kilometers (or 3 hours) north east of Melbourne.
“If an investor decides not to buy the discretionary holiday house, or investment property because they do other things that year, it impacts on our market,” says principal of First National Real Estate in Bright, and chairman of the Murray Alpine Division of the REIV, Barry Alexander.
“Three interest rate rises, increasing fuel costs and a bad winter snow-wise, have taken the shine off Bright’s real estate market this year,” said Mr Alexander. “These factors have actually had a worse effect on the market than the bushfires of a couple of years back.”
Mr Alexander says that real estate prices in Bright have increased about 5 per cent in the last year, but that buyers asking fair and reasonable prices are having no trouble offloading their homes.
REIV chief executive Enzo Raimondo says proximity to the city will continue to play a major part in coast and country property values. He said more Melburnians are confident investing in townships within 100 kilometres of the city.
Agents agree, saying two hours is the magic number most Melburnians quote when considering buying a holiday home.
Real estate markets in townships that fall outside of this ring, according to agents, are typically driven by that town’s own residents and are therefore not renowned for recording sharp spikes in value.
Townships within 90 minutes of metropolitan Melbourne, are the new black of Victoria’s coastal market, says Kay & Burton Flinders director Rollo Moore. He said Merricks, Shoreham, Point Leo and Flinders – all along Western Port Bay, have the most upside in terms of value growth, especially if they offer sea views and privacy.
Deans Marsh and Birragurra, in western Victoria, should also be on an investors inspection list, adds Mr Koren. “Once the Geelong Freeway is extended and bypasses Geelong, it will make the trip to those regions very accessible for Melburnians.”
Similarly, Mr Koren anticipates an improved road network to open up relatively undiscovered townships such as Leongatha and Korumburra in South Gippsland. “Some places being created out there are just unbelievable,” said Mr Koren. “The views would have Julie Andrews singing.”
For the year ahead, the REIV forecasts the strongest value increases to come from the surf coast. “Lorne is expected to appreciate by 10 per cent or more over the next three to 5 years, while Aireys Inlet and Portsea are expected to increase by between 7 and 10 per cent,” said Mr Raimondo.
“Amongst our regional centres Geelong stands out where the urban renewal, relocation of Government employees and excellent road and train linkages to Melbourne will underpin solid growth of between 7 to 10 per cent over the next 3 to five years.”
Agents say buyers, and therefore investors, are attracted to townships with amenities such as a major hospital, schools and a retail hub which includes a supermarket. Access to freeways allowing easy travel to and from the city, are also contributing to the success of some towns, particularly in western Victoria.
Agents agree the drought is affecting the value of farms, but is not affecting holiday homes in the coast and major country towns such as Bendigo.
“The main impact on property values from the drought is in incoming producing properties where the ability to generate income is directly linked to the availability of water,” said Mr Raimondo. “A second impact of the drought will be on the general economy in the west and north-west of the state as lower incomes may reduce demand for property in the medium term.”
Case study 1: Dereck and Robyn Southey
Dereck and Robyn Southey have invested in the city, coast and country!
The retired couple is moving to Port Fairy, a coastal town on the Great Ocean Road, about three hours from Melbourne. They have traded in a 34 acre property in Lockwood South, about twenty minutes from Bendigo, for a new house with beach views – about twenty minutes from Warrnambool.
The couple moved from Mount Martha, in Melbourne’s outskirts, six years ago.
“It was the desire to go back to the coast that prompted us to move earlier this year,” said Dereck. “But we had gotten used to the space of Lockwood South, and found most homes along the coast busy and suburban.”
Dereck said he looked at the Bellarine Peninsula, Torquay and Lorne before arriving at Warrnambool, which he loved instantly.
“It was obvious to me that people here really loved their town,” said Dereck. “There was a real sense of belonging, and we fell in love with it immediately”.
Principal of Colin Robertson Real Estate, Colin Robertson, said the Southey’s have bought smart, with land values in Port Fairy continuing on their upward spiral over the last couple of years.
“There’s a small stretch of property available for people along the beach and river of Port Fairy,” said Mr Robertson. He said the growing list of people waiting for opportunities is presenting the region as one to watch during the next development cycle.
Case study 2: Wayne and Jenny Churchill
Wayne and Jenny Churchill are having their cake and eating it too.
The couple recently bought a chalet, in the Victorian ski alps of Mount Hotham. They own a house in Griffith in New South Wales, about 6 hours away.
“We bought it with the view of renting it out as much as we can in the ski season, leaving some weekends for us or the kids to go up when they want,” said Wayne. “I’ve always found Mount Hotham a great place to visit in summer too – the top of the mountain is quiet, and a great place to chill out.
Agents expect rental levels at his alpine property to increase over the next few years, as will the capital value – ticking all the right boxes for real estate investment. “Once I realized a major developer had invested in the area, I was even more attracted to it,” said Wayne.
Developer MFS Living and Leisure Group is spending $500 million developing a new village for the 1750 metre high mountain. John Schryver, chief executive officer of Alpine Australia Enterprises, a division of MFS, says the development was given council approval last month and is about to start construction.
The new Hotham Village Redevelopment plan will include the realignment of the Great Alpine Road, to create a village similar to Whistler, 120 kilometres north of Vancouver.