Regional properties have traditionally had lower levels of capital growth and higher rental yields compared to capital cities. However, a resurgence in interest in regional property markets and the excellent growth they’ve enjoyed in recent years has sparked a debate about whether changes in the way we work and live as a result of the pandemic are going to be permanent. When comparing regional and metro properties, regional looks a lot more affordable at first glance. But how do the two compare as investments?
According to the ABS, over 40% of Australians were working from home in August 2021. Although those numbers have dropped substantially, it is clear that the way we live is changing. In March 2021 quarter, 104,000 people moved interstate, almost 20% higher than March 2020. Employers are allowing more freedom for staff to work from home. This has given increased flexibility for people to migrate regionally and take advantage of the housing affordability and lifestyle benefits in regional towns.
Regional properties have been attractive to investors in the past due to their high yields, although recent rent growth has not matched the growth in values. This has had a direct effect on the yields of regional properties. Units in Wollongong, Newcastle, and Central Coast have rental yields of 3.6%, 4.3%, and 4.1% respectively. These yields are now not too different from Sydney’s average of 3.7%. Data shows us that the further away the property is from a capital city, the slower the property tends to grow. In the property cycle between 2012-and 2017, Sydney house prices grew 85%, compared to the Central Coasts 71%, Wollongong’s 66%, and Newcastle’s 48%. The Murray Region, which is 600km from the Sydney CBD, only grew 26% in this time period. It’s evident that the margin in yields is heavily outweighed by the margin in capital value growth.
In most western economies, we see a trend in big cities getting bigger, and regional cities not growing at the same rate. Between 2008 and 2019, Sydney almost doubled the GDP contribution of all regional NSW cities combined. Although capital city migration decreased 0.1% in 2021, pre-pandemic population data indicates that capital cities accounted for up to 79% of Australia’s total population growth and as you already know, growth drives demand.
While regional towns may perform better than they have in the past due to changes in technology and the way we work, the longevity of this trend still remains unclear when compared against the decades of data pointing to the bulk of growth occurring in capital cities both in Australia and globally. Having said that it’s important not to be too dogmatic about anything and if the data points us to regional property in the future, that’s where we’ll put our focus.
In order to develop a successful property portfolio, it’s best that you do not let outside noise dictate your investment choices. Long-term growth is the key to wealth, and our research model is in place to approve locations across the country that are showing long-term growth drivers.