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Wine Region Property Markets

Wine Region Property Markets
March 30, 2020 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

For more than a decade now, each and every year our market research will inspire us to give the official Propertyology greenlight on a couple of new locations somewhere in Australia.

But before we begin recommending the location and then executing our buyer’s agent skills to actively help our clients to invest in real estate, we conduct an extensive field trip to gather all of the essential local intelligence required.

Often on these field trips, there can be moments that the local charm takes our breath away. Our own first-hand experiences enable us to totally relate to what attracts locals to call each town their hometown.

Investing in real estate has zero to do with whether you personally want to live there or not. Everyone is different; there’s no right or wrong. The key is understanding the various motivating factors that attract a critical mass to live there.

The growth drivers identified from our market research varies from one location to the next. The rising demand for Australian agricultural products is one of several money trails that Propertyology has been following for a few years. Viticulture (vino) is part of that.

According to the federal government’s Wine Australia, while annual Australian wine sales are circa $4.6 billion, the sector contributes a whopping $40 billion to the national economy annually. 63 percent of annual sales ($2.91 billion) are exports, making Australia the fifth largest wine exporter in the world.

Over the last two decades, the property markets of most of Australia’s wine regions have been above-average performers. In many cases, the growth in median house values within these beautiful rural communities has exceeded most, in some cases all, capital cities.

Twenty percent or more growth in residential property prices over the last three years occurred in regional locations such as Orange, Cessnock, Launceston, Macedon Ranges, and Mornington Peninsula, while Griffith and Mildura were only marginally less than 20 per cent.

Conversely, seven out of Australia’s eight capital cities were well below 20 per cent over the 3-years ending 2019. Hobart’s 30 per cent growth was streets ahead of second place – Canberra at 14.7 per cent – while the cumulative growth across the three years in Adelaide, Brisbane and Sydney was in single figures, and Perth and Darwin property prices declined.

Fool those who repetitiously claim that capital cities are always the best locations to invest. That’s absolute baloney!

In New South Wales, wonderfully strong wine regions include the Riverina, Hunter Valley and Central West. In South Australia it’s the Barossa, Clare Valley and Fleurieu regions. There’s Margaret River and the Great Southern regions in Western Australia. Victoria has the Grampians, Gippsland, Murray region and understated Mildura. And then there’s beautiful Tassie – the entire world has suddenly cottoned on to why this state is, oh so, so special!

The economy in most of these communities blend general agriculture with viticulture, manufacturing (especially food-related), and some amazing tourism experiences.

Whereas some Australians enjoy the occasional escape from the concrete jungle to a wine region, there are others who appreciate living in these regional wonders every single day.

The demographics of these vibrant vino wonders include a mix of multigenerational farmers, some affluent white-collar professionals who have elected to escape stressful city life, creative artistic types, and some retired baby boomers who can finally rid themselves of the rat race.

During Propertyology’s field trips, locals often tell us that there’s an increasing number of young couples who grew up in the area, left home in their late teens to explore the city lights, and then return to their roots in their early 30s to raise a family.


Affordable and Strong-Performing Real Estate

In most cases, home ownership rates are above the national average. While it’s easy to appreciate why local residents describe their lifestyle as idyllic, the cost of housing often is still quite affordable.

One can buy a quality 3 or 4-bedroom house on a quarter-acre block that’s in a desirable and centrally located street for circa $400,000 in great regional cities like Orange, Launceston, Cessnock and Griffith.

Unlike Australia’s big congested cities, many of these regional locations have a lower portion of their workforce in the construction industry so housing supply volumes are more consistent.

There’s no such thing as high-rise apartments or passenger rail, and urban sprawl often isn’t a big issue. Consequently, local property markets don’t suffer from the volatility caused by significant peaks and troughs in dwelling construction volumes.

Those thinking that the aforementioned recent strong performance of these property markets was just a short-term anomaly can think again. Over the last 20-years, the 6.9 percent average annual rate of capital growth for a Sydney house was inferior to the municipalities of Cessnock, Goulburn, Launceston, Macedon Ranges, Mornington Peninsulas, Mudgee, Shoalhaven, Yankalilla and Yarra Ranges. The 6.4 percent average annual capital growth for Orange is similarly impressive.

The outstanding performance of these property markets is yet another piece of proof that population growth is far from the biggest influence on property prices. Over the last 17-years of recorded ABS data, the average annual population growth rate of 11 out of these 15 locations was below the national average.

The statistical evidence also says that the property markets of these regional locations are indeed safer than most big cities. A bi-product of housing being more affordable and year-to-year housing construction volumes being less volatile is fewer downturns and greater market consistency.

While Sydney produced 5 calendar years of median house price declines during the last two decades, 12 out of these 15 wine regions saw price declines in only 1 to 4 years.

To be clear, this is not a promo for everyone to rush out and buy a winery. The point is to understand the role which wineries play within the local economy of these communities.

In addition to growing the grapes and manufacturing the wine, the impact of wineries on tourism trade and the increased demand for local goods and services is significant.

Wine Australia say that 8.4 million visitors went to an Australian winery in 2018-19. Twelve percent of visitors to Australian wineries last year were from overseas, with mainland China being the biggest contributor, followed by the UK. Chinese travellers rank Australia very highly for food and wine experiences and they clearly are not fixated on capital cities.

The average winery trip was for 7 nights and those 8.4 million visitors collectively spent $9.6 billion. That’s a lot of revenue going into the coffers of local retail, food and accommodation businesses over a 12-month period.

Wineries represent a very small portion of local housing stock. Rental demand for conventional housing within these townships is traditionally strong – again, why wouldn’t one want to live there?

Here’s a pleasant surprise for the stereotypical sceptics of regional Australia who have misguided perceptions about it being too difficult to get a tenant. As at December 2019, the vacancy rates for each of these 15 locations is below 3 percent and several of them are ridiculously tight (circa 1 percent).

On the other hand, Sydney’s 3.6 percent vacancy rate (an all-time record high) equates to 26,415 dwellings, which is sufficient to accommodate the entire population of Griffith and Orange combined.

Oh, and then there’s the salivating rental yields which, quite frankly, blow the big city returns out of the park.


Case Study – Launceston TAS

With a population of 67,000 people, Launceston is Australia’s 34th largest city. The broader northern Tasmanian region is home to arguably the most diverse and highest quality agriculture in the world.

The city has a very diverse economy and, with a 7.5 percent average annual increase in median house price over the last 20 years, Launceston’s property market has outperformed Sydney over the last two decades.

Consistently increasing passenger volumes through Launceston’s national award-winning airport is mirroring the trajectory of the local economy. Attractions include beautiful architecture, amazing restaurants and cafes, historical experiences such as the car museum, a boutique them park, and some new luxury hotels.

The quality of local amenities and general allure of the region’s attractions is such that Launceston now hosts several national sporting events, including the Big Bash T20 Cricket and AFL (home games for the powerhouse that is Hawthorn AFL).

The scenery, food and booze experiences enjoyed at several world-class local wineries include the internationally recognised Josef Chromy Winery that is famous for its pinot noir, chardonnay and sparkling wines, A-grade restaurant, beautifully manicured gardens, and wedding facilities.

Such is the international acclaim of Launceston’s Tamar Valley wines that the city plays host to the Effervescence Tasmania 9-day festival in November each year.

There’s little wonder that Launceston was ranked within Australia’s Top 10 most-searched locations on realestate.com.au last month.

Since late-2018, Launceston has been one of Australia’s strongest property markets. For a city that has so much to offer, it’s staggering to think that one can still buy a good quality character home within 5 kilometres of the city centre from $450,000 and attract a rental yield of more than 5 percent.

The property featured in this image was purchased by Propertyology’s buyer’s agents in November 2018 for one of our lucky everyday Aussie investors.

Future improvements to this amazing Australian regional city include the construction of a new university to commence this year, expansion of the Australian Maritime College precinct and defence innovation hub, a hospital upgrade, and urban renewal projects.


Future Growth Drivers

There are 6,000 grape-growers within Australia and 2,500 wineries which collectively produce 1.3 billion litres of wine annually.

With the population of global middle class anticipated to grow by another 1.5 billion people by 2030 during this Asian Century, it’s not rocket science to foresee increased demand for both wine export sales growth and wine tourism.

Free Trade Agreements signed between Australia and several countries over recent years also reduce the cost for international customers to purchase even more of our popular vino.

Air BNB’s commencement of operations in Australia in 2015 means there’s a continued increase in variety (and volume) of accommodation options for tourists in attractive communities like these.

As they exit the workforce, more and more Australian baby boomers are seeking a relaxed and more affordable retirement lifestyle than big city life. Ditto for some white-collar professionals in their 40s and 50s whom have had enough of the rat race.


Covid-19 Impact

Generally speaking, social distancing and isolation regulations relating to Covid-19 places the property markets of every Australian location (capital cities and regions) on pause.

During all of this significant (yet temporary) inconvenience, demand for shelter will always be required and the tight housing supply in many parts of Australia doesn’t change. Similarly, these current record low interest rates aren’t going anywhere.

Domestic consumption of wine actually accelerates during quarantine periods. On the other hand, wine exports and the tourism component for wineries (as with most other industries) is temporarily halted.

Locations with affordable housing are afforded the biggest cushion during Australia’s quarantine period.

Once it’s declared safe for Australians to come out of their cocoons, Propertyology anticipates there’ll be a big release of pent-up demand for all sorts of goods and services that we had to go without, including domestic tourism. What better place to release some of that pent-up frustration by enjoying a day-trip or long-weekend at one of Australia’s beautiful wine regions.

Post quarantine, large stimulus packages to supercharge the economy combined with record low interest rates will release the ‘pause button’ on property markets and quite possibly create a strong bounce as occurred in 2009-10 after the GFC stimulus.


Remove The Blinkers

When it comes to the term ‘Regional Australia’, most capital city folk are notoriously guilty of lumping every non-capital city location in to one big box of generalisations, misconceptions and untruths. There are ignorant assumptions like ‘region’ means tiny one-industry town, or dust-bowl, or that regional locations don’t have sufficient employment opportunities.

If only I had a dollar for every time that I heard someone say ‘… I can’t see the attraction of living in regional Australia’.

You tell me, what’s not to like about clean air, safe and strong community values, 5 to 10-minute commutes to wherever you want to go, great schools and local sporting amenities, fantastic cafes and restaurants which showcase the best (locally grown) food you’ll find, and quality lifestyles?

Bottom line, where one chooses to live is a series of personal circumstances but, when done well, where one chooses to invest in real estate is a series of structured financial and economic considerations. This big Land Down Under is littered with opportunities.

Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.