This region may not be set for instant growth, but it has a lot more to offer than first meets the eye.
With the downturn in coal prices over the last three years and the contrasting rise in Sydney property values, places like the Hunter Valley have been easy targets for property commentators. These commentators suffer from either short memories or selective hearing, for it wasn’t that long ago that regional locations like the Hunter were flourishing while most capital city property markets were floundering.
When we combine average annual changes in median property values with rental yields to calculate a ‘total return’ over the last 15 years, property markets of the local government authorities (LGAs) within the Hunter Valley actually outperformed all of greater Sydney’s 43 LGAs and 29 of greater Melbourne’s 31 LGAs. Cessnock (ranked 77 out of Australia’s 550 LGAs) was the region’s best-performing market. Also among Australia’s top 40 per cent were the LGAs of Maitland (134th), Newcastle (175th), Singleton (209th), and Muswellbrook (220nd).
From the onset of the GFC in late 2008 through to the end of 2014, even with the coal industry downturn factored in, Hunter Valley property markets have still compared favourably against all capital city markets, with the exception of Sydney and Melbourne.
The Hunter Valley is a large region with a population approaching 700,000 people. The variety of industries within the region is arguably the most interesting in Australia. With different property entry prices, rental yields and industry drivers, there really is quite a contrast between each of the markets within the Hunter.
Newcastle is mainly heavy industry, with some big manufacturers such as Boeing and BAE plus Australia’s premier fighter jet base. Some of the and best-quality coal in the world is produced in the Upper Hunter and exported from the world’s largest coal export terminal at Newcastle to places like Japan, Korea, China and Taiwan. Newcastle has the infrastructure and economic profile of a capital city, a median house price of $475,000 and rental yields around 4.5 per cent.
On both a capital growth and a rental return front, Newcastle has better investment potential than greater Sydney. However, there are better locations elsewhere in Australia.
With median house prices in the low $400,000s and 4.5 per cent yields, Port Stephens and Lake Macquarie are very much lifestyle locations and aren’t likely to ever set the investment world on fire.
Maitland is also a large-ish regional town (population 75,000), with very good quality retail and business services, a median house price of $400,000 and 5 per cent rental yields. There is a bit of new supply in the pipeline, including a large Huntlee estate, which has the potential to keep a lid on growth for some years yet.
The rich agricultural land, plentiful water supply and rolling hills create the perfect environment for wineries, tourism and agriculture. Cessnock (winery country) has a median house price of around $300,000 and yields of 5 per cent plus, although employment can be patchy.
The coal mines are in the Upper Hunter. There is a much higher quality of life and greater diversity of industry in Hunter Valley mining, compared to the coalfields of central Queensland. Singleton has a significant military base and Muswellbrook is horse stud and manufacturing country, with tertiary education facilities through the local TAFE. Median house prices and rental yields in Singleton and Muswellbrook are very similar to Cessnock, however I feel the potential for investors in the medium to long term is slightly better.
Contrary to some perceptions, employment growth has been steady in the Hunter Valley over recent years. Middle-Upper Hunter had a net loss of jobs in 2013 and 2014 and then rebounded in 2015. The industry diversity and lifestyle components helped to cushion property prices in the Upper Hunter from large falls as the mining industry workforce shrunk with falling coal prices. Property prices in Australia’s coal-related markets peaked in late 2012 and since then values in the LGA of Isaac (which consists of Moranbah and Dysart) have declined by 64 per cent, whereas Muswellbrook has experienced a mild 9 per cent decline.
Some of the largest companies in the world have invested billions of dollars in Hunter Valley. Coal is easily the world’s biggest source of electricity and is likely to remain that way for at least several decades. What many people don’t realise is that the BHPs of the world have been extremely active behind the scenes, making several mining expansion applications in the Upper Hunter over the last couple of years. While mining company revenues have come under pressure, they have been very successful in reducing expenses (especially labour costs) and it is apparent that they are lining their ducks up so as to be ready to move as soon as the coal price curve turns again (we are much closer to the bottom than the top).
I recently purchased a property in the Upper Hunter for my own portfolio. I’m not anticipating spectacular growth in the short term, however there are very few locations throughout Australia that are set to roar right now. I’m a huge believer in selecting locations for their fundamentals and buying while the market is flat. This philosophy enabled me to purchase the pick of the litter with this fully renovated three-bedroom house for only $248,000.
I’m not advocating that every investor does this. For clients with smaller property portfolios there are several other locations that Propertyology would suggest they purchase in first. My own strategy involved keeping my portfolio balanced by complementing the exposure that I already have in other states and other industries. This purchase represents a small capital outlay at the bottom of the market and a small exposure to an industry (coal) that has more upside right now than most realise (just ask the world’s biggest mining company, BHP).
Simon Pressley is Managing Director of Propertyology. Having being awarded Australia’s buyer’s agent of the year on three consecutive occasions, Simon is a REIA Hall Of Fame Inductee. Propertyology’s core business involves full-time analyses of property markets all over Australia. Working exclusively for property investors, their service involves buying properties in strategically chosen locations all over Australia.