Regional NSW Property Market Update October 2019

Lismore Property Updates

The official population of Lismore City as at 30 June 2018 was 43,843 according to the Australian Bureau of Statistics. Approximately 25% of Lismore’s population lives in rental accommodation with the median rent now being $395 per week for houses and a median rental yield of just under 4.7%. The median rent for units in the Lismore area is $275 per week, with a median rental yield of just over 5%.

With a low vacancy rate relative to many regional centres of 1% and the ability to buy a four-bedroom, two-bathroom dwelling for under $400,000, Lismore and its surrounding suburbs represents an opportunity to invest in property without going into debt up to the eyeballs.

The trade-off for this relative stability is normally lower capital growth, however, for the first time investor, building a stable base for a property portfolio is important.

Speak with a Lismore Harbour Mortgage Broker today.

Casino/Kyogle Property Updates

Given that residential rent levels in most regional centres and towns have improved over the past 12 months, common sense would indicate that the gross yields for residential property in the regional areas of Casino and Kyogle would be somewhat higher than the more expensive properties located on the coast.

But why is that?

Quite simply, the price level of residential housing (dwellings or units) in a regional area is generally going to be at a significantly lower base compared to a similar house type in a coastal area which helps the conversion of the rental into a higher gross yield (before expenses and debt servicing).

For example, imagine a four-bedroom, two-bathroom, modern brick-clad dwelling with a double garage in Casino on a 700 square metre site with an approximate value of between $400,000 and $450,000 and a rental value of around $450 to $500 per week. This translates to a gross yield of approximately 5.5% for a single dwelling (based on a 50 week rental period with an allowance of two weeks vacancy).

Get yourself a functional teleportation machine and convert those said improvements into an energy pattern (a process called dematerialization) and beam them onto a similar-sized parcel of land about 50 kilometres to the east coast near say Ballina or East Ballina.

From there, expect the price level for similar improvements to have a market value of around $700,000 to $750,000. However, do not bet on a commensurate increase in the rental level! Expect the rental levels to be around $600 to $650 per week, thereby, translating to a gross yield of closer to 4.25%.

The figures sound even more tempting when considering that the demand for rental accommodation in Casino and Kyogle is relatively strong for properties at the lower end of the market value range. There is always a need for accommodation and it is generally at the base or lower level of the market value range where we can see a boost to the gross yield rate.

There are examples of residential dwellings in Casino and Kyogle where the market value of the detached dwellings on a standard house site under $225,000 can fetch market rental rates of around $275 to $300 per week. This translates to a gross yield of around six to 6.50%.

Similar gross yield rates can be achieved by two-bedroom, one-bathroom, attached units with a single carport or garage, particularly within close proximity of the CBD in Casino or Kyogle – a favourite for the older generation tenant needing to be close to town services.

Well…doesn’t that sound like a property investor’s dream come true! Especially when term deposit rates at the bank are at an all-time low (think 1.5% to 2%) and fixed mortgage rates are hovering around the mid-3%.

However, within these regional areas such as Casino and Kyogle, the trade-off for reasonable gross yield rates is that capital gain is not expected to be overly significant within a short term time frame. It really needs to be a long term vision of possibly ten-plus years to see some significant capital gain. Otherwise, if the property offers some added opportunity such as subdivision of excess land to create an additional lot or a revamp of the internal layout of a house or unit to create an additional bedroom in order to improve the property’s appeal and market value, then some capital gain could be realized in a shorter time frame. In such circumstances, by selling excess land as a separate lot or title, the net proceeds could be used to reduce the overall principal debt which in turn reduces the overall outgoings and ultimately produces a better net yield for the remaining house on a smaller lot. What’s a net yield? Ah yes, the gross yield is the gross rental divided by the purchase or sale price, whereas the net yield is the gross income less all outgoings such as rates, insurance, water, sewerage and property management divided by the purchase or sale price. That is the true test of investment attractiveness. If the net yield is higher than other investment vehicles, then this would seem appealing. However, this does not consider the effect of debt servicing. Allowing for an 80 per cent lend, the debt servicing associated with a principal and interest loan whittles down the net yield pretty quickly.

It really only benefits the high net worth individual who needs no loan and has a lazy $500,000 or more to park in real estate while the share market has a few shivers and the bank term deposits are barely two per cent.

The situation does become slightly more attractive where the gross and net yields for a block of flats or units are higher than a detached house or a single unit. A good example is for a block of five units on one title in Casino which recently sold for $700,000 with a gross rental of $50,000 per annum. This translates to 7.14% gross which would be around 5.5% net yield after outgoings.

However, once again, that does not include the effect of debt servicing. So, for an investor relying on an 80% lend to purchase the property, there would be the high likelihood that there would be a shortfall to be met, i.e. the rent would not cover all outgoings and debt servicing. The cashed-up investor would be much better placed to take advantage of these opportunities.

In summary, if you are hunting for yields, consider it from a long-term perspective and be prepared to cover some of the short fall-outs of your own pocket if debt servicing is required.

Ballina Property Updates

Yields throughout the Ballina Shire are generally expected to be lower than those in the less sought after areas of the Northern Rivers. This can be attributed to higher median property prices.

This becomes more pronounced when you get into the more sought after areas of the Ballina Shire such as the coastal areas of Lennox Head and East Ballina and the desirable rural localities in the north of the Shire such as Newrybar, Knockrow and Tintenbar. Whilst yields are low, rental demand remains strong. The addition of a detached studio or granny flat or dual occupancy style accommodation is becoming an increasingly desirable proposition within sought after areas of the Ballina Shire. This is perhaps most evident within the new Epiq estate at Lennox Head with a significant percentage of new builds having some form of dual occupancy style accommodation.

A basic one-to-two bedroom studio or granny flat detached from the main residence would be expected to achieve between $350 and $475 per week. This is an attractive return compared to a basic three-bedroom residence in Lennox Head or East Ballina which is worth say between $700,000 and $750,000 and would only be expected to achieve between $500 and $600 per week rent.

Clarence Valley Property Updates

Across the majority of the Clarence Valley region, yields are seen to play a relatively minor, albeit stable, role in residential investment decisions.

Beachside localities such as Yamba show particularly responsive seasonal yield changes and appeal to investors. High summer or peak returns on capital investment remain far above that of the regions average for short term holiday rentals while in terms of long term rentals, there is a plethora of tenants seeking low maintenance, central, beachside rentals.

Further south and at the lower end of the spectrum, the number of recent sales of sub- $500,000 duplex or multi-unit flat buildings in Grafton has seen an increase. With a traditionally high percentage of tenants versus owner-occupiers, Grafton comfortably fits within most yield investor checklists. Across the board, tenant demand remains particularly driven by condition or quality and proximity to infrastructure or amenities in the Clarence Valley.

Coffs Harbour Property Updates

What sort of yields do you expect to achieve on the Coffs Coast? Speaking solely on a permanent weekly residential basis, the expected gross yields are not dissimilar to many regional localities with returns in the order of three to five per cent for the standard unit or house up to $700,000.

Over this mark, the executive permanent weekly rentals are thin with limited demand for the $700 per week rents.

The higher the suburb median price, the lower the expected yield on a permanent residential rental basis. If it is return you are after then we must look to other forms of rental income in the form of holiday rents or maximise your return through multiple accommodation buildings.

Firstly, holiday rentals. These can take the form of whole property or Airbnb. Either way, if you build it they will come. In other words, local tourism is up and there is high demand for short term accommodation especially during holiday periods or when organised sporting events come to town. Coffs Harbour has hosted many large touch football and Oztag events which literally overrun all available accommodation facilities, highlighting the need for more.

The returns in this sphere are higher, expected around 5% to 10%, however, there will be extra running cost in the form of cleaning and management to consider. The plus side is the out of town owner has the ability to use the property for personal use.

Let’s look at multiple tenancies which can take several forms from the basic converted garage to detached granny flat in the back yard or purpose-built duplex or flat accommodation building. These types of properties provide an extra return with the ability in some cases to strata title and sell individually in the future, however again you will struggle to do better than a 3% to 7% return on your money. Typically at the higher end of the spectrum, 7% or more will be reflective in the condition of the property generally requiring short term upgrade renovation work which is representative of the lower purchase price compared to the rental return.

An example of this is 19 Arthur Street, Coffs Harbour which sold for $1.3 million being a dated two-level hostel accommodation complex comprising 15 bedrooms with manager’s unit. It was sold on an analysed yield of 8.15% which on the surface of things appears strong, however, required significant upgrade work.

There are no specific places or suburbs attracting higher yields, rather supply and demand is the key factor. We consider the safe bet in the future when looking at maximizing returns will be short term accommodation, typically smaller one and two-bedroom setups which are fully furnished. As stated there is a growing holiday market plus the advent of the Coffs Harbour Pacific Highway bypass construction due to start in the coming years will only add to this shortage need. We have seen this happen already in the smaller townships of Grafton and Yamba since the commencement of infrastructure projects such as the Grafton Bridge and Pacific Highway upgrade between Grafton and Ballina.

So keep an eye on the multi-accommodation market especially duplex and flat buildings which may show lower yields at 4% to 5% now, however with a coat of paint, new floor coverings, some basic furniture packages and management skills can see this return double in the coming years. Let’s not forget the by-product of this work will also be capital gain.

Central Coast Property Updates

As we move towards the latter part of 2019, we are seeing a little more stability in the residential market across the region. There is still the occasional outlier sale, but that can be seen across all phases of the market.

The stability brings a good opportunity to look at where values are sitting and in the case of this month’s submission, where yields are sitting.

We generalise yields across several sectors of the market to include normal residential, prestige market and the holiday letting market.

No surprises that normal residential dwellings and units in the suburbs provide the bulk of rental accommodation.

Four-bedroom, new or newish project style dwellings towards the northern end of the region in suburbs that include Hamlyn Terrace, Woongarrah and Wadalba are showing yields in the vicinity of 4.5% to 5% gross.

In the older established locations and closer to the lakes and beaches, such as Bateau Bay, the gross rental yield varies from 3.5% in the higher value bracket to 6% in the lower-priced property segment.

The unit market across the Central Coast Region is well established and like most of the eastern seaboard, it is expanding. New developments are a prominent feature in the Gosford CBD and we can see that gross yields of between 4% and 5% can be expected.

The beachside suburb of Terrigal is a popular tourist and weekend destination, but it is also home to many living and working on the coast. Gross yields on units seem to be hovering around the 4% mark at present.

The Wyong unit market has traditionally been a solid investment choice and at the moment we are seeing gross yields varying anywhere from 5% to 7%.

House and granny flat (secondary dwellings) have been popular in the peninsula suburbs of Umina Beach and Woy Woy for several years now. This type of property is typified by an older dwelling, sometimes renovated and sometimes not, with a new granny flat erected within the rear yard area and accessed via the rear laneway. A sample of this property from our records indicates that yields are around 5% to 6%. There have been some instances of 7% being obtained, but we believe a more representative level of yield to be slightly lower than this.

In regard to the holiday letting market, getting a true market yield depends on a number of factors, least of which is the disclosure of income to the market and that is a rare thing. Other factors that can affect yields include the location, user reviews of a particular property, non-availability due to repairs and of course, occupancy rates. There are more factors, but these are the ones we hear the most about.

We hear and see yields ranging from sub-4% to well over the 10% mark. The end result for holiday lettings is that we find that the data is limited and too unreliable to make a call on yields.

Southern Highlands

With the recent downturn in the New South Wales market across the board, we have seen some levels of investors seeking to move money away from the major capitals and into regional areas.

The Southern Highlands has remained relatively popular due to its good proximity to Sydney while still being relatively affordable in selected areas close to the main local townships of Bowral, Mittagong and Moss Vale.

For example, a basic 1990s three to four-bedroom project home in East Bowral can be purchased for between $650,000 and $750,000 in the present market and we are seeing rental returns on these in the mid to high $500 per week range. Brand new project homes in Renwick and Braemar are a similar range with a slightly higher rental return. These properties are generally achieving good rental returns as they have lower vacancy rates due to good proximity to the highway and central shopping hubs. Overall the Southern Highlands would most likely be considered to have good rental yields but nothing exceptional due to also typically benefiting from reasonable capital growth, again off the back of its good proximity to Sydney.

As far as the best rental yields go, we are mostly seeing these come from properties that have multiple areas of occupancy, whether that be semidetached duplex or apartment-style properties which are seeing yields in the high 5% to 6% region. This is mostly due to the lowest rental available in the Highlands region being around the $350 to $400 per week range, so these smaller (two to three-bedroom) dual occupancy style dwellings are achieving good rental returns.

Goulburn Property Updates

Goulburn has remained reasonably quiet over the past 12 months like most areas in New South Wales with the recent slump spooking investors out of the market.

However, in late 2016 right through 2017, we saw Goulburn boom as a popular hotspot for Sydney investors purchasing properties largely due to the affordability, future growth prospects and solid rental yields. This is a result of low vacancy rates attributed to the police academy, correctional centre and major institutional style organisations, the ongoing talk of the high-speed rail network, the affordable median house price of $405,000 and the considerably high rental income.

For example, a reasonably new four-bedroom, two-bathroom project style home within the developing areas north of the CBD can be purchased from $475,000 up to $675,000 in the current market with rental returns ranging from $400 to $500 per week. Moreover, we are seeing a duplex market emerging in the new larger subdivisions attracting Sydney buyers due to the high rental yields of approximately 4.5% to 5% for each individual semi-detached dwelling or apartment-style property. The older heritage style dwellings closer to the CBD start from $320,000 and return from $300 up to $500 per week for a fully renovated three-bedroom home in close proximity to the central shopping hubs and attract yields of 4% to 5%.

Investors are also drawn to the area due to the steady growth the region has seen over the past few years. More young families and first home buyers from Canberra and the Southern Highlands are seeing Goulburn as an affordable lifestyle alternative with easy access to the Federal and Hume Highways, Canberra City and Airport.

Tamworth Property Updates

Show me the money! For those chasing income rather than growth, Tamworth offers a range of options all with attractive returns. Whether it be single residential or a unit block, there is something for all investors. Tamworth sees all types of investors and no particular strategy (growth versus yield) dominates.

To begin with, let’s take a look at single residential investments. The average return throughout Tamworth sits around the 5% mark (say 4.5% to 6%) for most single residential dwellings. Now, while this is certainly a better yield than that found in the larger cities, it is still not amazing.

The area we find attracts yield investors is that of West Tamworth, in particular, Coledale. This area has a lot of housing commission and is not a desirable location for owner-occupiers, however with sub-$200,000 buy-in and returns north of 8%, it is certainly attractive for investors.

A recent sale of 47 Cossa Street at $130,000 showed a gross return of 9.6% with a tenant in place at $240 per week.

If single residential or properties in undesirable locations isn’t your cup of tea and you prefer multiple-occupancy properties than do not stress, Tamworth has that covered as well.

Duplexes and triplexes typically see gross returns of 6% to 8% depending on the location, with those in the more desirable areas of East and North Tamworth falling towards the lower end. The benefit of a multiple occupancy property is less risk with less chance of all units being empty as well as higher capital growth than the properties mentioned previously. 22 Charles Coxen Close, Oxley Vale, recently sold for $429,000 with an assessed weekly return of $560 or an annual gross return of 6.8%.

For the last style of investment property, we check out unit blocks (four or more units on one title). While these properties are bought and sold less frequently, they certainly have a place within the market. The returns for unit blocks are not dissimilar to those of duplexes or triplexes, with investors expecting 6% plus returns.

100-102 Belmore Street, West Tamworth which consists of a four-unit building and a separate three-bedroom dwelling sold for $1.090 million earlier this year. With a gross return of $68,120 or 6.2% and the potential to subdivide or build more units, this was an attractive buy for any investor with the cash.