Will Regionals Outperform?

I read with interest this morning an update from Rpdata that illuminated the fact that with the exception of Hobart the regionals are continuing to outpace the capital cities over recent months?

Australia has millions of Baby Boomers on the verge of retirement and Sydney and Melbourne have just experienced a period of strong price growth.

Never before have the two above phenomenons occurred at the same time.

So some may be surprised in the coming years by the extent of movement from the capital cities to the regionals and thus by the extent to which the regionals outperform the capitals.

 

I would be very surprised if that happened, yes.

 

As I said: many may be surprised in the coming years by the extent to which massive numbers of people move from the capital cities to the regionals and the corresponding and resultant extent to which the regionals outperform the capitals.

Moreover, I did not collate or publish the data that indicated Sydney house prices have fallen 2.7% over the last 12 months and the regionals have continued outperform the capitals (excluding Hobart) over the last few months...that was RPData.

So it's important to remain analytical and not "shoot the messenger."

 

You should run that question past @Anthony Brew .

I can tell you that I believe regionals will benefit from affordability constraints. I dont think they'll shoot the lights out, but I do think they'll be stronger performers than mainland East Coast cities form the next several years simply because they are starting at a lower median price base.

Borrowing capacity is going to start driving investor and PPOR decision making towards less expensive/better yielding opportunities ... otherwise investors in particular are going to find themselves snookered /stuck in quicksand.

I think Perth will also see these outcomes, and possibly even Adelaide.

 

BB's who move have to sell first. Most will want a certain price. The market may not comply. Also a lot of BBs like to be and need to be near services and family so probably most won't want to move.

 

Is this question about the next 5 years or the next 30 years?

In the short term, it's quite possible some regionals will outperform certain capital cities.

In the long term, ongoing population pressure in the capital cities means they consistently do much better.

 

Next few years maybe. Longer than that? Definitely not.

 

If you count greater Bris/Perth/Adl as Regional? Fair chance one of these may outperform Melb/Syd.

 

I've read some research that suggests Baby Boomers are much more adventurous than previous generations of retirees; that they'll move much further afield than their previous counterparts.

So Baby Boomers may surprise in terms of where they choose to move and spend their latter years?

Baby Boomers aside, however, it's becoming clearly evident that the majority of population growth in Sydney and Melbourne is being driven by overseas migration. And that said, increasing numbers of people who are born in Australia simply don't want to reside in Sydney/Melbourne anymore. So what's appealing in cultural and lifestyle terms for overseas migrants is no longer appealing for those born here.

In view of the above, and remaining cognisant of the fact that improved technology and commuting options are more easily facilitating the option of working in a regional location, we can expect the trend of people leaving the capitals to live and work in the regionals, to accelerate rapidly over the next 10, 20 and 30 years.

Therefore, perhaps the idea of Australian cities offering a reasonable lifestyle (and in sociocultural terms lifestyle is the key factor that Australians value; it sets us apart from the rest of the global community) is becoming redundant?

 

Like I said, it certainly would surprise me.

I've read all the articles and books that like to speculate that there will be a big aged migration out from the capital cities to regional areas. I think the prospects of this are vastly overstated.

I don't know many BBs that end up ditching their neighbourhood, friends and family to move out to some other regional area just for the sake of it.

I think its similar to the "downsizing" trend that people love to speculate will happen as well.

From what I've seen, older folks rather tend to cling onto their current homes, even when the location and size (and even amenity) no longer suit them.

I guess its what they're used to.

 

Could you link the research? I'd be interested in having a look myself

 

The NSW Central Coast used to be very popular for Retirees coming up from Sydney .

Port Macquarie and Tweeds Head were others, im not so sure nowadays though

 

I don't think that the notion of people leaving the capitals for the regionals was or is overstated.

It was derailed by a phenomenon that was both monumental and unprecedented.

The GFC.

When the GFC hit, Superannuation balances crashed; retirement plans were put on hold; people naturally stayed at home; it was a very unsettling time.

Superannuation balances have since bounced back and Sydney and Melbourne have boomed...so those who bought 30, 20 or even 10 years ago are sitting on massive PPOR tax free gains.

What's stopping them moving from the capitals to the regionals now...the grand kids?

You wish, lol.

DYOR anyhow. Talk to agents in the regionals and ask them which demographic has been buying all those properties for $500K plus. I think you'll find the majority are cashed up retirees/downsizers from Sydney and Melbourne.

And I read a plethora of material both online and hardcopy. I think I read about the concept that Baby Boomers are much more adventurous than previous generations of retirees in a book.

Google it and you may get lucky...

 

Once upon a time, and in a galaxy far far away, retirees from Sydney and Melbourne wanted to relocate to the Gold Coast. What attracted them may not be there any more - too crowded. They can stay in Sydney if it's just for the surf-beaches.

 

Yes exactly grand kids. Plus their kids, and the rest of the family. And friends.

Why would they move away from all that, even if financially they were capable of it? And our tax and pension system isn't exactly incentivising downsizing or relocating either.

I think you're being suckered in by the same articles and books I read. Like I said, I wasn't buying it at all.

Anyway, we're both just guessing really, but that's my best guess on what I see in front of me.

 

As I said previously: RPData...not me... collated and published the data that indicates the capitals (excluding Hobart) are going backwards whilst the regionals are continuing to gain momentum.

And moreover, perhaps do some research in the context of how the regionals have performed, in percentage terms, over the last 20 years, before you suggest that anyone has been "suckered" lol...

 

That's just data from a point in time. What does that prove exactly? It doesn't mean its going to be a long term trend or even any trend at all.

You literally just said that the GFC apparently derailed this trend, which would be smack bang in the middle of your 20 year chart. And what would a chart like this prove exactly? How would we have any idea what caused the growth (or lack of) in regional areas compared the capital cities?

Trying to use it as any proof of any one factor seems silly to me. Are you sure you just aren't seeing what you want to see?

 

I think a lot of long term Sydney residents are starting to become pretty frustrated with the overdevelopment, overcrowding, overpriced housing and rising crime rates and are contemplating moving out of Sydney to a regional area. Most of my friends (who are mostly in there 20's-30's) and work colleagues (who are mostly in their 50'a and 60's) have bought houses in the Illawarra region, shoalhaven region, southern highlands region and Mudgee, I don't have a single friend or work colleague who has bought any property in Sydney in the last 12 months.

Personally, I intend to move out of Sydney in the next few years (I have already bought a house for dirt cheap walking distance to the beach), the only reason I'm hanging around in Sydney is to get a few extra certifications relevant to my profession as they are difficult to obtain in regional areas.

 

Two main aspects that investors keep in mind as they look at purchasing an IP:
1. Can they get the mortgage required from banks i.e. serviceability
2. Is the yield sustainable with interest rate hikes i.e. holding cost

With the recent spike on Sydney/Melbourne property prices both 1 and 2 are not as attractive to investors, so naturally people will start look at other areas such as regional cities which will fit these two criteria better.

As an example, Geelong is hot and we have seen from media that properties are consistently getting snatched up by Melbourne buyers, both due to affordability and livability. For the same budget, instead of buying one property in Melbourne, they can probably look at getting two in Geelong so it makes sense and having two rentals will always be better than one

 

I believe it's cyclical. Once the capital cities have their run, the regional cities start to move upwards as parts of the population are unable to afford to live within the capital cities.

Then within the regional cities there would be gentrification happening which gets further growth.

Here's what Property Update says:

"Gentrification is a change in the fortunes of a particular suburb, including the changing demographics of the people who actually live there.

This generally is the result of a different class of people moving into an area who then invest their time and money into creating changes in their new neighbourhood.

As these changes take place, property values tend to grow as the area loses any stigmas and more individuals on higher wages move in, putting upward pressure on values."