Real risk, or perceived risk?
I’ve never totally understood why, but when a lot of property investors hear the term “regional town”, they automatically freeze up and think “regional” is “risky”.
The reality is, history has taught us that a majority of the best performing property markets have been in regional towns. It is in every single property investor’s best interest to think long and hard about specifically why they perceive investing in regional locations to be more risky than capital cities.
Perhaps this perception is formed through years of dramatic headlines about investors losing money through buying a property from a spruiker in some tiny town with little more than a pub and a few houses occupied by those who work at the only business in town, a new mine?
Or, maybe, this perception is more common from those who have never lived anywhere other than a capital city?
Over the years, we’ve had many clients express to us that there are better employment opportunities in capital cities than regional towns. In some cases that may be true. However, it is a gross generalisation.
The fact of the matter is almost eight (8) million people elect to live in regional towns. There are literally DOZENS of these towns which are well over 100 years old, with all of the essential infrastructure which sustainable communities require, a diverse economy, stable population, better controlled housing supply than bigger profile cities, and employment opportunities are plentiful.
Don’t believe me? Check out the unemployment rates of the small sample of strong regional locations.
If you ask residents living in regional towns, most of them will say that they prefer a regional lifestyle over a busy capital city. And, you can be guaranteed that the cost of living, including housing, will be significantly more affordable than ‘the big smoke’.
It is no more relevant whether or not a property investor would live in a regional town than it is whether a share investor chooses to do their transactional banking with a credit union.
Yes, there are plenty of regional locations which Propertyology would never invest in because the degree of risk is too great. But, there is a big difference between ‘real risk’ and ‘perceived risk’ (lack of knowledge).
What is risk, anyway? Perth and Darwin are capital city markets that are currently declining in value and it may be a couple years before property values start increasing again. What about the market risk that a few interest rate rises may pose to hundreds of thousands of people living in Sydney with a $800,000 home loan? Or, the very real risk in Melbourne where 90,000 jobs will be chopped in 2016-17 when three big car manufacturing plants close down? Or, almost every capital city in Australia getting smashed with new housing supply in volumes that are higher than has ever occurred before?
Some less informed investors claim that regional markets are more volatile than capital cities. Again, another gross generalisation. Markets which rely very heavily on one industry generally do have more pronounced peaks and troughs. But there are plenty of regional locations which have produced steady price growth, year after year, and have outperformed most capital cities.
Real risk, or perceived risk?
There is risk with every investment. Propertyology doesn’t discriminate between capital cities or regional towns – we invest in both. That said, our money is that history will repeat itself – certain regional towns will produce better returns for investors than capital cities.
The objective of investing is to make money. Astute investment decisions aren’t made with the blinkers on. And, they most certainly aren’t made with the sheep mentality of following the herd.