Regional markets lagging capitals, with the gap set to widen

Regional markets that were the flavour of the pandemic are now struggling to attract buyers and are showing signs of a slowing rental market.

Capital growth in the regions came in at a modest 1.3 per cent over the three months to July, compared to a 1.8 per cent rise in capital cities.

The areas taking the biggest backward steps were in Victoria and New South Wales.

There was decline in values across 14 regional New South Wales markets and six regional Victorian markets, according to the CoreLogic Quarterly Regional Market Update released Thursday (22 August).

Queensland and Western Australia have been locked in a battle for property performance supremacy for a couple of years now, but regionally it is Queensland that has reemerged as the leader.

On the back of strong growth in centres such as Gladstone, where values rose 9.2 per cent over the three months to July, and Townsville (7.8 per cent), Queensland overtook WA, where Busselton (7.2 per cent), Bunbury (6.7 per cent), and Geraldton (6.2 per cent) were the strongest markets.

Across Australia’s largest 50 non-capital city Significant Urban Areas (SUAs) that two-speed regional split was becoming more evident, with 40 per cent of regions recording a decline in values over the quarter, while 11 regions saw values rise by more than 3 per cent.

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CoreLogic Australia Economist, Kaytlin Ezzy, said the pace of growth has eased from recent peaks as normalising internal migration patterns cool demand for regional housing.

“The quarterly growth rate in regional dwelling values has slowed from a recent high of 2.2 per cent in April to just 1.3 per cent in July.

“The capital cities have also seen a moderation in growth, albeit milder, from 2.0 per cent to 1.8 per cent over the same period,” Ms Ezzy said.

The overall signs, however, pointed to a softening of regional property prices.

Ms Ezzy noted over the three months to May, just eight markets recorded quarterly declines in values. That number has since more than doubled, with 20 of the 50 largest SUAs now recording falls over the three months to July.

“As the higher cost of listing and high interest rates environment continues to put pressure on households’ balance sheets, it’s likely we’ll continue to see values and rents moderate in the coming months.”

Profit-making real estate sales strong

There was at least one barometer by which regional property had finally exceeded the capitals.

Profit-making sales reached their highest level since 2008 for houses and 2011 for units.

Notably, it was also the first time since 2009 that a higher proportion of home owners in regional areas (96.1 per cent) walked away with a profit compared to the cities (96 per cent).

According to Domain’s annual Profit and Loss Report, released Thursday (22 August), 94.6 per cent of regional units sold at a profit versus 89.4 per cent in cities. A trend of proportionally more profitable unit sales in regional areas began in 2021, reversing a prior 12-year trend in which city units led the way.

Brisbane is the best city performer, with 99.5 per cent of houses and 95.6 per cent of units in profit. The proportion of profit-making resales has reached multi-year highs across many cities. Brisbane: highest on record for houses and units. Adelaide: highest since 2006 for houses and 2009 for units. Perth: highest since 2008 for houses and 2015 for units. Sydney: highest since 2022 for houses and units.

But it is still apparent that the regional areas are experiencing greater pressure to sell.

Short-term resales are declining across the country’s capitals but it’s a very different picture elsewhere.

The proportion of sales that have been held for less than two years has declined in the capitals. This trend aligns with a shrinking pool of distressed listings, suggesting home owners are weathering the high interest rate environment.

But the volume of short-term resales in regional Australia has almost doubled over the past decade.

A decade ago, there were 2.4 short-term resales in the capitals for every one in the regionals. Today, this has reduced to 1.4 short-term resales in the capitals for every one in the regionals.

Strongest performing suburbs in Australia

When it comes to the highest performing investment-grade locations for annual capital growth, the divide is less evident between the capitals and regions than it is between the expensive and affordable.

Research commissioned by depreciation specialists Washington Brown and released Thursday identified the top investment capital growth performers around the nation that also have the combined power of high rental yields over the past quarter and the past year.

Four of the top 10 were regional towns (Moree, Withers, Greenfields and Oakey) but all were at the affordable end of the property market price spectrum, with six in WA.

Washington Brown Director Tyron Hyde said the top performing property investment areas for capital growth also feature above average metrics for yields and vacancy rates.

“The top 10 have all had price rises well above 20 per cent – in addition to providing superior rental yields.”

Mr Hyde said the 40 per cent capital growth that occurred in the Perth suburb of Hillman was reflective of the extraordinary price pressure experienced in the Western Australian capital over the past 12 months.

“A 35 per cent leap in values also happened in the little-known NSW regional town of Moree, where values have been boosted by construction of Australia’s biggest national infrastructure project, the $35 billion Inland Rail Link which spans the three major eastern states,” he added.

“The third scenario relates to Elizabeth East in the northern suburbs of Adelaide, a precinct heavily targeted by first-home buyers and investors for its affordability, good amenities and proximity to major employment nodes.”

Each of these regions also recorded annual growth exceeding 20 per cent, showing that regional property strength was mirroring the wider two-speed performance playing out in the nation’s capitals, where Perth, Brisbane and Adelaide were booming while their larger and smaller counterparts were flat, or in Sydney’s case recording modest increases.