As confidence in the property market eases heading into 2016, Queensland might prove to be an exception, according to NAB's Quarterly Residential Australian Property Survey published in October.

It notes that the Sunshine State has replaced NSW as the most 'optimistic' state for property and tips it to lead the country for price and rental growth over the next 1-2 years. Given that Queensland has typically been behind NSW in the property cycle, this sounds about right. But where should investors focus, exactly?

Think regional

When most property investors consider Queensland, they typically turn their attention to its largest markets in Brisbane and the Gold Coast. Just like the busiest areas around the country, these cities might assure you of constant rental tenants or even a consistent level of capital growth, but you'll also typically face a higher than average purchase price.

This is why some experts instead recommend prospecting in regional Queensland towns, which in some cases could outperform major city centres in the year ahead. Here, below, are a few markets to focus on.

Sunshine Coast

Among the best Queensland prospects is the Sunshine Coast, says director of Hotspotting.com.au, Terry Ryder. Located about 100 kilometres north of Brisbane, it's usually thought of as a holiday destination, especially at its northern end where there are popular resorts in Noosa. Indeed, its tourism focus has meant the local property market has been quite volatile, but this is changing, says Ryder.

"It’s an economy in transition," he says. "It’s diversifying with lots of infrastructure happening and that’s helped the real estate market become much stronger than it has been in the past. So it’s definitely a growth market."

The Coast’s growth has surely been helped by improved job opportunities around several new development projects, including the multi-billion dollar Sunshine Coast University Hospital precinct, the Maroochydore Principal Activity Centre and the upcoming community development of Caloundra South.

As such, units in Caloundra, for example, rose in value by 15% to a median of $407,000 in the year to September, according to CoreLogic RP Data. Meanwhile, Maroochydore has been popular because it's a central commercial hub and houses there have climbed in value by about 7% in the year to September, according to CoreLogic RP Data. Median prices for three and four bedroom houses are hovering around the $500,000 mark right now, as per the REA Group.

Toowoomba 

Further inland, the residential market in Toowoomba is now close to its growth peak, according to director of property advisory Matusik Property Insights, Michael Matusik. Boosted by its varied economy, which has seen job growth in its resources, manufacturing and agricultural sectors, among others, Toowoomba has certainly ridden a wave of popularity in its property market to this point.

"It’s well into the upturn phase of the property cycle," says Matusik. "It is likely to peak within the next 12 months and maybe sooner rather than later."

However, as a result of downsizing households, Matusik's firm expects medium density dwellings such as townhouses, duplexes and small-lot homes, as well as traditional three and four bedroom houses on standard allotments to be in demand in the coming years.

Earlier in the year, the REA Group also called out units in the suburbs of WIlsonton and Toowoomba City as being among the best properties for capital growth, though this seems to have subsided of late, based on more recent CoreLogic RP Data numbers. Both still present good opportunities for investing for rental yield however, generally up above the 5% mark, according to the CoreLogic RP Data. 

Cairns

Ryder agrees that perhaps the best time to buy in Toowoomba was two or three years ago and that investors could instead focus on a town like Cairns for better prospects right now.

"It’s a very similar story to the Sunshine Coast,” says Ryder. “Essentially it’s been a tourism economy that’s been quite volatile and the market has been similar – which is not a strong sector to be based on because there’s so much discretionary spending. Cairns is diversifying and spending a lot on infrastructure and its property market has responded to that." 

Matusik says that the Cairns market has also been in a recovery phase and that when and how fast it recovers depends on new jobs creation and the existing supply - demand balance. That balance is now undersupplied when it comes to new housing stock, he says, and so this suggests that demand could fuel price growth. 

Townsville

The median rental yield in Townsville is quite good at present at 5.5%, according to data published by the REA Group, and this should lure investors. It’s worth noting, however, that in some areas rental demand is low with perhaps too many housing options.

Still, Ryder says that Townsville has a very steady economy and is arguably the strongest and most diversified regional city in Australia. 

"It has so many strong strands. And it usually has a pretty solid property market," he says. "It’s been weak the last couple of years because developers built too much property there. That’s often the case when you have strong economy. 

"Townsville is just emerging from that, so we expect it to come into a growth phase quite soon. It’s definitely one to watch,” he says. “If you understand what’s happening you’d be looking to buy there now before prices start to rise.”

Matusik says that while resale property supply in Townsville remains high for now, the new housing supply there is largely in balance with current underlying demand, and as a result, he expects little price or rent growth over the next year or two.  

Worth a closer look

Overall, Queensland's regional towns are filled with possibilities for property investors. Sure, there are a few spots that sound good on paper due to their proximity to resource projects such as Gladstone and Mackay, but that in reality, are rather speculative prospects with only short term gains.

With a little research, however, there's no reason why buyers can't capitalise on what Ryder likes to call the “win-win-win” that comes with the right prospects. These wins include lower entry to buy than in the capitals, better rental returns, and higher rates of capital growth. 

"There are some very good prospects in the regions," he says. "You have to look at specific individual examples that stand out. The commentary tends to be a generalised capital figure for a whole region, and of course regional figures can be dragged down by resource based cities. But some of these regional towns have lots to offer."

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