Is the demand for regional property a short term fad, or is it here to stay?
David Hancock, Director, Binnari Property
The biggest story in property over the last year has been the incredible rise of Australia’s regional property markets. Property price growth in regional Australia outpaced growth in the capital cities in 2020 for the first time in more than 15 years. In the 12 months to April 2021, regional property price growth was 13 per cent, more than double the 6.6 per cent growth in the capital cities. In some markets the growth has been phenomenal. The Byron Bay market grew by a whopping 31.2 percent in the 12 months to March 2021 and the Sunshine Coast market by 19.4 percent.
The pandemic has created unique conditions which have become the drivers for growth in regional property markets. The adoption of remote and flexible working – accelerated thanks to the pandemic – has enabled Australians residing in the capital cities to relocate to regional Australia without threatening their job prospects. In the December quarter, 10,600 people relocated from the capital cities to regional Australia, almost the highest number on record.
Lockdowns and restrictions have made people rethink what kind of lifestyle they want to live or brought forward their plans for a tree or sea change. The opportunity to live in closer proximity to beaches or the bush, in a larger home, for a smaller investment and in an area with a lower cost of living is hard to pass up.
With international borders closed, some have purchased holiday homes in regional Australia in lieu of being able to travel overseas. Extremely strong rental demand by holiday goers unable to travel overseas, has also made holiday destinations desirable investment hotspots.
A permanent change?
Many commentators are suggesting we’re seeing a permanent transformation in how Australians live and work which will contribute to the continued exponential rise of regional property markets, even post-pandemic. Our view is that it’s best to wait and see. Any suggestion we’re seeing a permanent paradigm shift is premature and ignores just how unique the conditions have been over the last 12 months.
Once international borders reopen, Australians are vaccinated and the pandemic is contained, life and work is likely to look a lot more like it did pre-pandemic than we may like to admit. While some regional property markets will continue to rise, others will stabilise and others will fall.
In fact we’re already seeing this shift play out in the data with the capital cities outperforming the regions for the first time in a year in March 2021, achieving 2.8 per cent growth compared to 2.5 per cent growth in the regions.
Which factors could dampen growth in regional areas?
Once Australians can travel overseas again, they will. This is likely to reduce rental demand and therefore investor activity in some holiday hotspots. It will also lessen demand for purchasing holiday homes as Australians reconnect with their love of travel. While this won’t affect every regional property market in the same way, it is likely to have a greater impact on those markets that are not supported by a strong local economy or that have experienced out of cycle property growth due to COVID-19 demand.
The novelty of working from home is likely to start to wear off once businesses have to contend with the practical realities of having employees dispersed widely. When businesses are up against the challenge of building and maintaining culture remotely or the unique workplace health and safety risks arising from having dozens, hundreds or even thousands of remote ‘workplaces’ within the one organisation, many will be inclined to return to having their staff in the office the majority of the time. This will make it more difficult for those in capital cities to relocate to the regions.
Which regional markets will continue to perform?
Some regional markets will hold up much better than others. They will be less susceptible to swings or boom and bust cycles.
Markets within two hours of the capital cities will remain desirable for those willing to commute. In NSW this includes the Illawarra and Shoalhaven regions, Newcastle and the Hunter Valley. In Queensland, the Gold Coast and Sunshine Coast will remain strong. In Victoria, Geelong and Ballarat will continue to remain popular. These destinations will also remain desirable to holiday goers, downsizers and potential investors.
Many of these markets also have other growth factors in their favour including:
- Employment prospects
- An aspirational lifestyle
- Infrastructure development
- Population growth
The Sunshine Coast is a great example of a market which combines various growth factors. It’s close to Brisbane, boasts a highly desirable lifestyle, has strong job prospects and extensive infrastructure development including the new international airport and commercial precinct. The Sunshine Coast is a great option for investors looking for a regional property market with capital growth potential.
What lies ahead?
The growth in Australia’s regional property markets of late has been an exciting development, but it’s premature to suggest we’ll continue to see the same growth trajectory in all markets post-pandemic. That would require a larger exodus from our capital cities than we’ve seen throughout the pandemic and faster jobs creation in the regions. The loss of 10,600 people from Australia’s capital cities still only represents 0.06% of the population in our capitals. This is on par with previous periods, pre-pandemic. This kind of permanent demographic change will likely take many years, certainly much longer than the length of a pandemic.
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