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How to succeed in the property market during a recession by avoiding big capital cities

Australians are being urged to buy properties in regional areas that aren’t dependent on tourism to make money during a recession.

The coronavirus downturn is having a particularly bad effect on Melbourne real estate with median house prices falling for four straight months, while Sydney’s equivalent values have dropped for three consecutive months.

Aus Property Professionals, a buyers’ agent, is recommending investors chasing capital growth instead consider established regional areas within a two-hour drive of a major capital city to avoid the boom-bust real estate cycle.

‘Australia has a lot of emerging regions, but even established regional towns don’t really have growth cycles as such,’ the group’s managing director Lloyd Edge said.

Digital Finance Analytics principal Martin North, an economist, is so downbeat about the COVID-19 recession he is forecasting a 35 per cent dive in Melbourne house prices during the next three years and as Sydney falls by up to 18 per cent.

With capital city markets struggling in 2020, as metropolitan COVID-19 cases climb, Mr Edge recommended a town close to prominent regional centre with an established population of at least 10,000 people.

‘They’re more likely to have several strong industries in the vicinity,’ he said.

He also advised against investing in areas that were too heavily reliant on overseas tourism, with the national border closure decimating the sector.

‘Steer clear of “tourist” hotspots as they can be unstable, seasonal and easily fall out of favour,’ Mr Edge said.

Investors are also be advised to consider good value towns that were cheaper than a more well-known and upmarket area a short drive away. 

Lennox Head, on the far north coast of New South Wales, made the list.

The beach town is also a short drive from Ballina, where unit prices grew by 16.5 per cent in the year to July 2020 to $546,892, CoreLogic data showed. 

Ballina is close to Byron Bay, a popular holiday area for celebrities, and is a two-hour drive from Brisbane.

The town, however, has a sizeable construction and healthcare workforce.

Prices at Lennox Head and Ballina are both well below Byron Bay’s $1,042,587.

Newcastle, a two-hour drive north of Sydney, also made the shortlist.

The former steel making city has turned into a university town since BHP closed its 84-year-old operations in 1999.

Being considerably cheaper than Sydney, median house prices there have risen by 10.4 per cent during the past year to $622,387.

Mr Edge recommended the inner-city suburbs of Hamilton or Waratah.

The Sunshine Coast, north of Brisbane, was also recommended with Mr Edge keen on the beachside town of Caloundra and the hinterland town of Bli Bli.

This region of Queensland has seen median house prices grow by nine per cent to $653,664 during the past year.

More upmarket Noosa has a median house price of $833,091 – a 16.6 per cent annual increase.

Mirador, on the far south coast of NSW, was another market on the list with health care its biggest employer. 

The town is near the cheese-making town of Bega, which has a median house price of $504,255 following a 1.1 per cent increase during the past year.

Still, the level is almost half that of pricey Kiama, where the mid-point house price is $924,896, a level only marginally below Sydney’s million-dollar mark.

Mr Edge suggested investors who still had to work in a big city consider ‘rentvesting’ where they rent in a major metropolitan centre and rent out an investment property in a regional area.

‘Although people often believe the traditional principle that ‘rent money is dead money’, this strategy allows for investors to enter the property market sooner, whilst also living their desired lifestyle,’ he said.

‘However, in order to make this work, you must invest the difference to build your wealth.’

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