Is regional property primed for a rebound

Who remembers the heady days of 2021?

The media was awash with stories of surging prices across regional centres as demand in towns big and small surged. Regional house prices jumped by 22.2 per cent and 17.3 per cent in 2020-21 and 2021-22 respectively.

Fast forward to this year and the market for regional property looks more challenged. While the performance of regional markets isn’t too bad over the year (6.9 per cent vs all capitals cities at 7.9 per cent), it’s been more constrained in recent months.

In the July quarter, home values in regional markets increased just 1.3 per cent, while capital cities rose 1.8 per cent.

So, was the great Covid-era regional boom a flash in the pan or can we expect provincial centres to mount a comeback?

Revisiting regional property boom

It’s worth revisiting the regional boom to see if the factors that drove the rally could re-emerge.

During this period, interstate migration picked up, especially from Victoria and NSW to the north (mainly south east Queensland). But some reports of the movement were greatly exaggerated - it was mainly a case of people moving their retirement plans forward.

There was also a lot of talk on blogs and other forums of young Australians buying up in the bush to telecommute to jobs in the city - also greatly exaggerated.

The most underreported aspect was the impact of JobKeeper payments flowing to business owners who didn’t have a revenue downturn. Treasury estimates this totalled $27 billion (the AFR calculated it as $38 billion) and quite understandably, many of these owners took the money and invested it in coastal property.

Add these factors to record low interest rates and a booming short-term accommodation market and we get a clearer picture of what drove the surge.

Regional real estate today

With higher interest rates, and a cost of living crunch stalling the short term accommodation market, it’s perhaps not that surprising that regional centres have lost a bit of their shine.

But while the regions as a whole have been slow, it’s not a universal trend.

Regional range

Source: PropTrack

CoreLogic notes that growth across largest 50 non-capital urban areas is diverse, with 40 per cent recording a decline in values over the June quarter, while 11 regions recorded value rises of more than 3 per cent.

If we look at PropTrack’s figures from June 2024, you can see this diversity mapped out, with a whopping 24 percentage point spread between best and worst performing centres.

These numbers give us clues as to the dynamics driving regional markets.

The first thing that strikes you is how many of the top regional performers are in Western Australia and Queensland. It’s no coincidence these states also have the best performing capitals; encouraging older Australians to cash in on higher prices and make a sea or tree change. 

The other thing that stands out is the relatively low prices of many best performers, with only two in the top ten showing a median price of $600,000 or more. The more expensive centres in NSW are not travelling quite as well.

Down south, things are not as pretty. In Victoria, increased property taxes are encouraging many asset rich, low income landlords to sell up while in Tasmania, cost of living pressures appear to be crimping investors.

Are regional markets likely to improve?

Looking ahead, the most telling factor is likely to be interest rates.

In many Victorian and regional NSW centres, the underlying positives attracting first home buyers and first time investors are still apparent despite the cyclical low. A fall in interest rates next year would see their performance numbers pick up.

These centres share several common factors, including a relatively large local population, ease of transport to a major capital city and prices at a significant discount to their state capital of around $200,000 or more.

If we apply these same long term growth drivers and falling interest rates to the equation, the best placed cities include centres like Toowoomba, Geelong, Bunbury and Ballarat.

The other city I would highlight is the Gold Coast. For a long time, this was a place where investor dreams went to be squashed. But population growth and increasing diversification of the economy have pushed the city into the same bracket as capital city markets.

It’s a similar picture for Newcastle, NSW.

What all these regional centres share is buyer demand not just from retirees and lifestyle change buyers but also younger home buyers and renters, where an easy commute to a capital city is a big draw card.

As we move forward it’s the lack of these drivers that is likely to crimp the growth outlook of some this year’s high performers, such as Bundaberg and Townsville.

If you’re thinking of investing in regional Australia, I would start by narrowing your search to centres with multiple types of buyer demand in established, thriving provincial cities.

I would also ensure you get advice from a qualified buyers agent with years on ground experience to help guide you towards a property with all the right factors to attract a mix of good tenants and ensure strong resale appeal.

That advice should also help you avoid properties with environment risks like flooding and storm surges to counter some of the growing cost of home insurance.

For the shrewd investor, the regions do offer some good prospects at a discount to Australia’s expensive capital city markets.