Go west to invest for best property growth prospects

With all the hype around the mining industry, anyone would be forgiven for wondering where the benefits are being seen – housing markets are generally slow, consumer confidence is low and everyone is saving rather than spending.

However, the good news on the resources front is that the mining boom is real and many housing markets around the resource and agricultural regions of the country are benefiting from strong demand, which is driving up transaction numbers and home prices.

According to the Reserve Bank of Australia’s commodity price index, the price of non-rural commodities (which includes iron ore, both thermal and metallurgical coal, gold, liquefied natural gas, crude oil and alumina) is up 106 per cent since hitting a global financial crisis-induced trough in May 2009.

The mining industry is, of course, interested in taking advantage of the high prices by extracting as much stuff from the ground as it can. The agricultural sector is also seeing major improvements with the Bureau of Agricultural and Resource Economics and Sciences estimating farm production was up 6 per cent over 2010-11 and agricultural exports are forecast to rise further over the coming year. Demand for workers is high while housing options are generally scarce in many of the most active regions.

While the capital city housing markets generally languish, many areas of regional NSW are showing some strong results across their housing markets.

Council areas such as Murrumbidgee, Coonamble, Cowra, Gundagai, Singleton, Wagga Wagga, Palerang, the mid-western regional and Maitland have all recorded more than 5 per cent rises in their median house price over the past 12 months.

The performance of these areas is in contrast to the coastal and lifestyle-driven markets along the coastline of NSW. Housing markets in these areas typically remain in the doldrums due to a slowdown in sea change migration flows and fewer buyers in the holiday home market.

Investors looking for housing markets that are likely to outperform the capital city average over the next few years may start to consider these areas in greater numbers. With the rural and non-rural commodities sector gathering pace, it is likely many of these regions will continue to prosper.

In many cases, these locations provide relatively affordable, entry-level prices, coupled with solid rental yields.

Gross rental yields are highest in Coolamon Shire Council, which is north-west of Wagga Wagga. The region shows fairly low house prices (median is just $122,000, while the average house rents for $250 a week, providing an indicative gross yield of 10.6 per cent).

However, a word of warning for prospective investors and home owners in these locations – economies with a singular dependency on a given commodity can be an inherently risky investment.

Some risk can be mitigated by targeting the larger service centre towns where the economy is more diversified and less dependent on the success of a single commodity.

Tim Lawless, RP Data
National research director

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