NSW city of Orange losing investment hotspot status even before Electrolux shock
Orange has been a recent NSW property investment hotspot reportedly offering high yields and high capital growth – which rarely aligns in country towns.
But the Electrolux decision last month that will see 550 jobs go in the lead up to the mid-2015 plant closure certainly highlights the risks of enduring regional investment success.
The median price of an Orange house now stands at $325,000, reflecting a 5.4% gross yield.
Its units stock sells for $225,000, according to RP Data, reflecting a 6.1% gross yield. Some 18% house price growth over the past five years, along with 12% price growth for units.
And investors were assured "solid returns (would continue) for quite some time."
However scratch beneath the headlines to see a recent $324,000 three-bedroom brick house sale, that didn't reflect anywhere near the five year growth, having last sold in 2005 for $296,000. Its recent $335 asking rent down on its $340 asking rent of two years ago.
A two-bedroom villa sold this year for $250,000, just $10,000 more than its 2007 sale price. Yes there have been better growth, but the examples suggest to me that the hotspot reputation hasn't been warranted.
Its supposed market strength derived from several spruiked factors including a low unemployment rate of around 4.5% is under pressure.
Its local economy has certainly been underpinned by state and federal public service - especially the NSW Department of Education and Training and Department of Prime Industries (DPI) providing around 1,370 jobs.
It also comes with a university, hospital and airport.
Orange has been benefiting from mining expansion and operations. So much that the shortage of rental property spilt over into motel occupancies which were running at a 90% until early 2012.
The boom in house sales and values in Orange was being partly driven by the Cadia East Gold, the largest underground mine in Australia with an estimated three decade life, and now with a permanent mine workforce of around 800 people.
Orange also boasts one of Australia’s best wine districts and is considered a regional gourmet food capital.
PRDnationwide Research analysed the rent figures for attached and detached dwellings over the past four years for me.
The results showed a 2.9% decline in the median rent price of a three-bedroom house and two-bedroom unit in the 12 months the June 2013. The median rent for a three bedroom house closed at $330 per week, while the median rent for a two bedroom unit declined to $250 per week.
They noted with mining activity reaching a mature stage, mining-related construction workers have now left the city, leading to a rise in rental vacancy.
The rental vacancy rate has increased from below 2% in November 2011 to 4.2% in September this year.
"Electrolux’s recent announcement of closing its Orange manufacturing plant is likely to add softness to the market," PRDnationwide research analyst Oded Reuveni-Etzioni said.
PRDnationwide expect price growth to remain around 3% per annum in the medium term, while a return to below 2% vacancy is unlikely.