House prices in these cities are set to explode

Esava Ratugolea of the Cats marks the ball ahead of Josh Caddy of the Tigers and Tom Lynch of the Tigers during the 2019 AFL round 12 match between the Richmond Tigers and the Geelong Cats at the Melbourne Cricket Ground.
Geelong property prices have been flying, much like its football team. (Photo by Dylan Burns/AFL Photos)

Conventional wisdom dictates investing in regional cities is risky, and capital cities are a safer bet for returns and growth.

But this axiom is false, according to buyers' agent and Your Property Your Wealth director Daniel Walsh.

"This point of view was never accurate," he told Yahoo Finance.

"We have been investing in major regional locations for years, which have recorded strong capital growth as well as rent returns over the years."

He warned investors to be selective when looking at regional areas, but picking the right cities can bring great rewards – citing Geelong and Ballarat in Victoria as recent examples.

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"Geelong had 32.7 per cent median house price growth over the two years to the end of 2018 and Ballarat recorded 24.2 per cent over the same period, which was also the same period of time that Sydney and Melbourne were posting property price reductions."

Here are some factors to look out for when investing in non-capital cities:

The cities on the rise

Walsh told Yahoo Finance that ten regional cities could soon get a massive boost, which could result in a windfall for real estate owners.

The Business Council of Australia a few weeks ago urged the federal government to identify 10 non-capital cities to be marked with "priority status" for infrastructure spending and becoming jobs hubs.

"The council said the top 10 should be chosen on the basis of having nearby gateway infrastructure, such as an airport or major transport routes, two successful industries, strategic importance, proximity to major power grids, a university and a TAFE, and available housing and health services," Walsh said.

Geelong, Ballarat, Newcastle, Wollongong, Toowoomba and Busselton were named as having potential for priority status.

"[The business council] have highlighted the fundamentals that investors have always looked for in regional locations – because more affordable property prices is not a reason to invest in a regional area."

Satellite cities

Walsh said a regional city that was within "commutable distance" of a state capital – like Geelong – had much potential.

"When prices in Melbourne became too expensive, homebuyers and investors looked further afield for opportunities.

"They didn’t have to look very far, because Geelong is only about 75 kilometres away, which residents can commute by road or rail within about an hour if needed."

Newcastle, Wollongong and Toowoomba are in similar locations to their respective capital cities.

But it's also important for the town to have its own resilient economy.

"Geelong has its own diverse local economy, which employs many of its residents," said Walsh.

"The robustness of its economy was further evidenced by the closure of its Ford factory a few years back, which some detractors said would have a hugely negative impact on its property market when it didn't."

Population growth

A regional city with a rising population will shrink supply and escalate demand – and investors can cash in.

Walsh said technology is allowing more people to consider living in regional locations while working for a capital city-based employer.

"Consider you can still buy a blue-chip in Geelong for just $500,000, whereas the same property would cost you millions of dollars in Melbourne!"

There are regional locations that may look nice but stall in growth, which investors need to stay away from.

"I'm talking about those locations that are too far from any major regional locations or capital cities, which will always create a drag on their local economies," said Walsh.

"You don’t want to buy in the middle of nowhere, because it will likely always be that way... Like any property investment strategy, it’s vital that you don’t try to do it alone – and especially not in a regional area that you might have only ever seen on a map."

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