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Many property investors have made huge returns on regional markets. Contrary to what many old-school investors might tell you, these markets can yield tremendous growth. But how regional is too regional? The city of Keynes in Queensland compared to the town of Nell in Victoria is a pretty obvious pick. But where is the line between a solid regional town and a town that's just a bit too regional?
This episode, I'm going to share three tools that you can use to test exactly this. Number one, economic diversity. Number two, the types of properties. And number three, the population size. I'm Junge Ma, the lead research analyst at InvestorKit.
Let's get into it. If you're familiar with InvestorKit, you must know that we love regional cities. But just because we love them doesn't mean that we are comfortable buying in any regional towns. Here are two examples, Dubbo and Broken Hill in New South Wales. They're both affordable, both with a healthy rental yield, and in the long term, they have both grown well.
Here are some numbers. Dubbo's median price as of the end of 2024 is $505,000. Broken Hill has a median price of $202,000. Rental yield in Dubbo is 5. 2%, much healthier than the capital city of Sydney.
And in Broken Hill, it is even higher of 8. 1%. If we look at their 10-year growth, Dubbo's last 10-year total growth was 77. 2%. If we annualize it, it would be around 5.
9%. That is very much in line with the long-term average. And in Broken Hill, the last 10-year total growth was 75. 7%. Very much the same as Dubbo.
If we look further back in the last 20 years, Dubbo's total price growth was 220%, while Broken Hill achieved 253% 20-year total growth. So if we really compare these two towns, they're quite similar. Broken Hill, in terms of affordability and rental yield, seems even a bit better. However, the thing is, we would be comfortable investing in Dubbo, but not in Broken Hill. What's the reason?
Well, that is because Broken Hill, compared to Dubbo or other regional New South Wales cities, doesn't have a healthy enough industrial structure. Now let's have a look at the top five industries that contribute to the two towns' total output. In Dubbo, the top industry is construction, contributing 17% of its total output. Second place is manufacturing, 12%. Healthcare and social assistance is the third place, 10%.
Rental, hiring, real estate services is the fourth, that counts 9%. And the fifth is public administration and safety, and that counts for 7. 4%. As you can see, none of these industries are dominating the total output. And then let's have a look at Broken Hill.
In Broken Hill, the top contributor of its output is mining. Mining is contributing 54. 2% of its total output. And the second place comes healthcare and social assistance, and it only contributes 6. 5% of the total output.
Third place is construction, the same 6. 5%. Fourth place is transport, postal and warehousing, 5%. Accommodation and food services, 4. 9%.
It is obvious that mining is the absolute dominant in its economy. And in fact, I believe all the rest industries like healthcare, construction, transport and accommodation, they are more or less the supporting industries of the mining industry. So heavy reliance on any single industry is a risk for the economy's overall health. And that is why if that one single industry goes down, the total economy could be going down for many years, dragging the property market down as well. So that is why we are not comfortable enough in buying any town where the economy is heavily reliant on a single industry.
And in Broken Hill, it is the mining industry. So industrial diversity is the first tool we would like to use in telling whether a regional town is too regional. Here comes another tool. So the second tool we are talking about here is the types of properties. If a town is full of the most commonly sought after residential property, which is a three to five bedroom house on a few hundred square meter land, that would be good.
But if a town or an area is full of large farmlands or acreages, that is not the most commonly sought after property. And you may find it hard to get a good tenant. And for this one, I'm going to show you an example. There are two suburbs in the Lockyer Valley region between Toowoomba and Brisbane. One is called Gatton.
The other is called Placid Hills. Let me show you on the screen. Here's Gatton. It has a population of 7,800 people. That's not big, but we are comfortable investing in it because as we zoom in, you can see a lot of regular residential houses inside of Gatton.
And in fact, the rent percentage in Gatton is more than 40%. So plenty of houses that is really sought after by renters. And in comparison, let's go to Placid Hills. Okay, just next to Gatton. If you zoom in, you will see all these rural properties across the suburb.
And in fact, this suburb only has a population of 800 people and its rent percentage is extremely low at 6. 5%. So if you would like a rural life on a big piece of acreage, it is a great place to buy your own house in. But if you want to buy an investment property here, well, you might find it a bit hard to get a tenant. And the third tool you may want to consider is population size.
If a region is too small with a too small population, that would mean that its dwelling stock would be very small. And that will lead to very limited transaction volume each month. And we won't have enough data to support our decision. One example is the SA3 region of Lower Murray. I will show you on the ABS website.
Here we are at the ABS census website. And let's go to Lower Murray. That is it. A very big patch at the southwest corner of New South Wales. It has a total population of 13,000 and the total number of dwellings in the whole SA3 is just above 4,000.
So as a result, in the whole region, there's only one or two transactions happening each month. If we look at the 20-year sale price trend of the Lower Murray region, we're seeing this very bumpy trend line. In one year, there could be a 30-40% price surge and the next year there will be another 30-40% decline. That could be because that in this year, there are a few large farmlands being sold for millions, screwing the prices up. And in the next year, there are only smaller lands or smaller houses being sold and dragging the median house price down.
So because of the lack of transaction volume, no matter who the data analyst is, if you don't have a big enough data set to work with, you never get to a forecast that has real meaning in it. And that is exactly what we need to do to predict the trend in the future. Are you starting to see how? It's really important to pick a regional town with a diverse economy and a large enough population so we can actually have a sample size of data to make accurate predictions on where the markets may be heading. Because with an imbalanced economy and the lack of data, we're not actually probably investing.
It's more probably gambling. So in summary, buying in regional towns doesn't mean that you can buy anywhere. It's risky to buy in a city or a region just for the sake of its affordability or its rental yield rather than its market pressure, its economic strength or health and its market cycle. If you have any questions, leave a comment below. Arjun and I will do our best to reply to every one of them.
I'm Junge Ma, the lead research analyst at InvestorKit. Thank you for your time and I'll see you next week.
