Ballarat is experiencing some unusual demand at present. Capital growth has been stronger than typical growth for the region and while heady double digit growth is not sustainable long term, there are some key reasons why the region is performing so well right now.
Firstly – affordability. Melburnian buyers (and even some interstate capital city buyers) are reconsidering a lifestyle change and Ballarat offers employment in multiple sectors, a vibrant and beautiful old city, great education and a reasonably easy commute to Melbourne. This pull also includes retiree appeal for those who have made the decision to capitalise on the sale proceeds of their Melbourne home and move to the country for an easy lifestyle.
Secondly – investor appeal in an economic environment now where the lenders are making it harder for investors to get their hands on money. Many investors are recognising that they can also enjoy a more balanced cash flow if they optimise their rental returns and reduce their expectations for long term capital growth to a more moderated level of growth. While they won’t necessarily create fast equity from a Ballarat investment property, they will find that their opportunity to pay down their debt before they head into retirement is significantly enhanced.
Ballarat type properties offer a capital growth investor a chance to balance their portfolio.
But for owner-occupiers who are now targeting this market, the differential between the same priced offering in their nearest capital city is incredibly obvious. Renovated period houses within the city grid can be purchased from $450,000, and beautifully presented family homes in desirable areas are available in the mid three’s.
There is little surprise that Ballarat has become a tree-changer hotspot.
The recent short-term growth of the area has been notable. A recent period cottage sale in Queen St Ballarat East is testament to the growth of the area. Purchased last September for $360,000 and sold last week for $399,000 with no changes implemented to the property, the short-term owners made a slight profit in the face of stamp duty, agent’s fees and marketing costs. This is near-on impossible for most investors given the prohibitive costs of trading in and out of property.
A recent email from a dear client who purchased a cute Ballarat Miner’s Cottage in August 2013 for $292,000 reminded me how solid the recent growth of the area has been. She excitedly sold for $400,000 in this past week within 24 hours of listing the property online. Her motivation was to use the equity gain for another opportunity. Reflecting on her annualised capital growth rate of 7.24% p.a., some could argue that she timed the market growth very well, but based on the fact that the property was cashflow neutral for this time, some would say that the benefit of a buy and hold strategy is highlighted in situations like this.
Investing into lower capital growth areas should generally be a long term decision and the rationale should be based on cashflow, not capital growth. However a spike in value growth is not uncommon for regional markets and provided the growth drivers are evident, the employment market is sold and sustainable, and the population growth is not declining or at risk of a sudden decline, the investor can also enjoy the gains when they come.
Ballarat is a gentle market with a lot more on offer than stronger rental returns.
A walk around the lake, a visit to the gallery, a drive down to Buninyong, a night at a cool city wine bar or a trip to Sovereign Hill is just a weekend drive away. It’s little surprise that some folks even fall in love with the city.
Michell Harris Wine Room pic attached.