Why invest in smaller Australian capitals?

Sometimes, having a pre-approved home loan, an agent, and a dream isn’t enough to get homeowner hopefuls onto the property market – not with Australia’s ridiculously competitive property prices.

Recent CoreLogic data suggested sales are slowing down overall nationwide, despite sky-high prices and red-hot auction lots. This may not be the case, however, in Australia’s smaller capitals.

So unless they’re in a strong position to accrue lots of debt by investing in Sydney, Melbourne, or Canberra property, young home buyers with smaller loans/debt limits who are looking to grow their equity can find rising capitals such as Brisbane and Adelaide a more realistic investment opportunity, Mozo reported.

The Australian Bureau of Statistics’ current residential property price index showed that while prices in Sydney and Melbourne have skyrocketed due to intense demand, price increases in smaller capitals weren’t as dramatic.

Mozo said these relatively cheaper states can be picked out as potential investment avenues, where low prices have driven a bit of a property boom, especially in Adelaide and Brisbane.

Corelogic’s hedonic home value index showed the median dwelling price in Adelaide was $593,883. And for the average Australian mortgage price of about $600,000, that’s way, way more doable than Sydney’s $1,116,219 median dwelling price.

Even outside Adelaide’s CBD, a budget of $600,000 is enough to buy a wide variety of family homes. According to recent REA data, there are 138 Adelaide metropolitan suburbs with houses below the current median house price, making them a magnet for keen buyers, Mozo said.

Using the median variable interest rate of 2.71% p.a., a typical term of 25 years, and a loan the exact same amount of median dwelling price (according to CoreLogic), Data crunched by Mozo showed how much home loans cost in different Australian capital cities:

The rough estimate using average parameters illustrates the impact prices could have on home loan costs over time as well as indicates capitals could potentially give homeowners the biggest bang for their buck, Mozo said.