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Metro or Regional: which is the better property investment?

There’s a lot of debate in investor circles about which option offers better capital growth: metropolitan property or regional property.  But if we take a good hard look at the figures, we find that it really doesn’t matter as much as you might think.  Over the last century, the price difference between the two location types has barely changed.  While metropolitan properties often offer greater dollar returns, the percentage return tends to be similar in the long term between metro and regional investments.

Say you bought a house in Sydney for $1m and a house in a regional city for $400,000.  In ten years’ time, the Sydney house might be worth $2m, while the regional house is worth $800,000. You’ve made $1m increase in capital gains on the Sydney property and only $400,000 increase on the regional house… but both houses performed the same and doubled in price.  Your percentage return on each investment would be exactly the same.

Is everything equal when it comes to metropolitan and regional property investment, though?  Definitely not.  There are pros and cons to each, and it’s well worth considering these in regard to your own investment portfolio needs.

Pros Cons
Metropolitan property investment ·         Higher diversity in employment options means that demand for property is not reliant on a specific industry.

·         Larger population base generally leads to better services and infrastructure in the area, making it more appealing to renters and buyers.

·         Higher demand for rental properties.

·         Higher buyer demand for properties.

·         Typically high capital growth rate.

·         Capital growth cycles tend to be consistent and predictable.

·         Typically a much higher starting cost, which makes it more difficult for new investors to get into the market.

·         Yield returns – % of investment – are low, meaning that rental income often doesn’t cover outgoing expenses.

·         Regional property investment ·         Typically low starting prices, making it far easier for new investors to get into the market.

·         Yield returns – % of investment – tend to be high, meaning that rental income generally equals or exceeds outgoing expenses.

·         Fewer real estate agents in regional areas, so less options when it comes to picking a good Property Manager.

·         Smaller population base generally leads to less spending on infrastructure and services in the area – and these are often more spread out, making the area less appealing to renters and buyers.

·         Typically less diversity in industry and employment; a downturn in one industry can depress the economy in the whole area and negatively affect housing demand.

·         Capital growth is inconsistent and unpredictable in the short term: for example, property prices will keep up with metropolitan prices over twenty years, but capital growth may be minimal for 15 years and then jump substantially in the next 1 or 2 years.