Capital cities or country Australia: what makes a better property investment?

This article first appeared May 18, 2011.

Since one of the primary drivers of property prices in where people choose to live I like to know where future population growth is likely to occur to ensure the value of my properties keeps rising.

It should come as no surprise that the vast majority of people live within the capital cities. According to RP Data at June 2010, 64% of Australia’s residents lived in one of our eight capital cities, with 55.5% living in Sydney, Melbourne, Brisbane or Perth.

While we may have vast open spaces in this lucky country, much of it is empty expanse and two thirds of our population lives in only 0.5% of the overall land mass.

Going back a century or two, more Australians lived on the land, but with the industrial revolution the jobs and therefore the population moved to the big cities and this trend has continued. Even 50 years ago only 60% of our population lived in a capital city, but people just keep moving to where the jobs are.

Sure, we have a resources boom and a small percentage of our population is being drawn to the mining towns, but the vast majority of Australian business is housed within the major capital cities and that’s where the jobs are.

I’ve always chosen to invest in capital cities rather than regional Australia because a larger population base means more owner occupiers looking for homes (pushing up prices), as well as more tenants driving rental demand and therefore rents upward.

With good employment prospects and major infrastructure like schools, hospitals and public transport, as well as desirable lifestyle amenities such as shopping, recreation, restaurants and entertainment venues concentrated in Australia’s capital cities, it is here that we will continue to see a large portion of the population choose to reside.

Now I admit that there are some regional towns that have exhibited great capital growth, and in some cases better growth than some underperforming suburban areas; but on the whole capital city properties have outperformed other types of properties in the long-term.

And this is particularly true for our four major metropolises – Melbourne, Sydney, Brisbane and Perth – where more than half our population reside.

Another important consideration is that our large capital cities boast diverse economies with a wide array of industries supporting them, compared to regional towns where the local economy is often driven by one or two industries. Having a more stable economy ensures that the property markets in our big cities are less subject to sudden changes in the economic cycle and therefore more stable. This is different to the more speculative holiday hotspots and mining towns, where fortunes can be made and lost in the blink of an eye.

Just look at the once booming Gold or Sunshine Coasts, where properties are currently languishing on the market and prices have fallen due to a significant drop in the tourism sector – the main industry that largely drives that local economy.

Of course, all property markets are cyclical and will have their highs and lows, but over the long-term it is evident that above average capital growth will be found in the suburban property markets of our major metropolises. While this may led to affordability issues, particularly for first home buyers trying to get into these markets, it also means there will be a good supply of tenants for those investors who own the right property.

For me capital cities are the place to be.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.