Latest / The Follio Property Podcast / Where to invest in Australia in 2026? Regional vs. Capital City | Property Experts

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Where to invest in Australia in 2026? Regional vs. Capital City | Property Experts · The Follio Property Podcast

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the first time in a year. Australia's property markets are set to shine. Experts forecast price growth to slow in 2026. Surging by more than 20%. But tonight a warning about where and when to buy.
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The regional property market actually outperformed the capital city. 60% in a very short period of time. From 2020 to 2024, regionals on average grew 52.5% versus capital city 33.4%. Do you think that's a trend moving into 2026? Without a doubt, the wave of the regional markets in 2026 will come to a conclusion. So there's going to be a huge stagnation of supply will outweigh demand, and you're going to see these markets start to cool. Is there any risks with regional plays that aren't involved with capital cities? Vacancies, huge vacancies.
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When the music stops, bank valuation can be whatever it wants, but if there's no buyers out there, you can't give it away. And it's good to define what we see as an isolated area versus a metropolitan regional. Places like Geelong, Ballarat, and you've sort of reduced your downside risk because you're getting exposure to a key core market.
1:55
You're listening to the Folio Property Podcast. I'm Rhys Bettle and I'm here each week with my co-host, Lachlan Delahunty. Lachlan, if anyone's joined the podcast, what do we need? Newsletter. You want to talk about the newsletter? No, we'll talk about that as well. We'll do some reviews first too. Five-star review on Spotify. Like, subscribe, join the community. For those listening, Rhys is really upset because he got his first non-five-star review. So it's down to 4.9. He's taking a bit of an ego hit. So please support him in this course to get more five-stars.
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Yes, Lachlan. And he was too quick for me, but we also want you to join the community. So we've created some exclusive investor lens content from our chief economist, which will be launching at the start of Feb. There'll be a link in the show notes to register for that report moving forward. So that's pretty much all the data that we cover off in these podcasts, which has been exclusively for me in the past couple of years. And now obviously for Reece. Reece has a brilliant idea to share it with everyone. So that's our unique IP that we'll be sharing across all capital cities every month. Is that right? Correct.
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All we need is your name and email address and we'll get you on that moving forward. And like Lachlan said, this will be monthly. So we'll start to notice some trends on that as well. Lachlan, I want to talk today about regional versus capital cities. Pretty topical at the moment. Very, very topical. Since COVID, the regional property market actually outperformed the capital city in Australia.
3:11
And it did so during COVID as well. I don't know if you recall, but during COVID, if we had to round the grounds, it was particularly Victoria regional markets. That is for 45, evidence up to 50% during that COVID period. So they've been running hot for some time. Interesting. Because looking at the data, the core logic, they do a quarterly regional report. So if those haven't checked it out, Google that. It's a fascinating read. From 2020 to 24, regionals on average grew 52.5% versus Capital City 33.4%.
3:40
Now, this is a national average, so obviously we know cities move in different cycles. So looking at Perth, for example, that would have well outperformed the medium average. But on average, fascinating uplift there from a regional versus capital city. It is, and it's no surprise when you look at the affordability issues that have happened in each state and the wave of buyers, agents or investment advisors across Australia. Regionals, as we know, as a business, are much easier to buy in than capital cities. So there's a lot of reasons for this growth.
4:09
What's the main reason someone would buy an investment property in a regional versus capital city? So the reason these markets have run, I think COVID had a lot to do with that. People wanted to get out of the cities, right? So that's why we're seeing a large portion of growth because no one will be in lockdown in Melbourne or Brisbane. It's like, let's get lifestyle. But the second one from an investment point of view is the ease of buying. You're trying to buy in a capital city. You're competing with first home buyers versus home buyers versus investors.
4:33
The number of sales and the amount of off-market transactions that occur in regional, it's significantly easier to buy. So I think from a buyer's agent point of view, the ease of wrapping a good story around a regional play to drive a market, to service those clients and go in there and buy up the property, much easier than it is in a capital city. What about affordability?
4:51
Yeah, it definitely comes into play, right? What's the average investment size in Australia? Typically, most clients like to buy property between sort of $400,000 and $500,000. Obviously, serviceability after that gets more difficult. And if you look at the wave of the buyers, they've ran out of markets over the last five years because where they were buying in capital cities, say that Perth, Adelaide, and Brisbane, they were probably buying houses in those areas for $600,000, $700,000, going on the outer fringes, buying them for $350,000, $400,000. Now priced out, they've got to find other markets.
5:16
Those other markets obviously take them into these regional areas. And that's why we've seen such a movement just jump around. It went from Victoria, then shot up to a huge wave in Queensland. I'm talking about Darwin. It's not a regional, but we class it as one. Huge wave of that there now, purely from what's the cheapest market in Australia where the prices haven't moved yet. Let's jump in. And that's what we're seeing.
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Well, it's fascinating because looking at last quarter's data, Capital City actually outperformed regional. Now, I'd assume a lot of that's got to do with the government's stimulus in terms of their no LMI on a first-time buyer, probably increased a lot of the activity in the Capital City. Do you think that's a trend moving into 2026? Will we see Capital Cities outperform regional or are we still looking at regionals going on a run in general?
6:25
Without a doubt, capital cities will outperform regionals this year. And moving forward, I think the remainder of the 2020s, my personal bias is that the regional play is done. Why is that? It's been such a movement towards their post-COVID. So you talk about a post-COVID come down. So we saw that exodus out of the capital cities. Now you track all the migration data. Most of these regional areas have negative interstate and negative overseas migration numbers.
6:48
So there's more people leaving these areas than there are attending, which is one of the key economic fundamentals that we look for when investing in a market. And we're seeing the opposite happening in the capital cities. We're seeing mass migration come back to capital cities for work, lifestyle, those sorts of things. And there's going to be an increase in vacancies because a lot of the property transactions have been from investors. So you see vacancies go through the roof because rents are not there to support it. And then you're going to see more properties come on the market. Demand will outweigh, so supply will outweigh demand. And you're going to see these markets start to cool.
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I do, calling it here first. The wave of the regional markets in 2026 will come to a conclusion. I like it, like a calling it out early in the year. So we'll track that and we'll see how we go at the end of the year. How much does the capital city have a play in the regional going on a run? The reason I ask this, right, WA and Queensland have some of the best performing regional assets in the country. Capital city, Brisbane and Perth are
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two of the top performers besides Darwin, but we say we kind of count that as regional anyway, in 2025. And actually Victoria, which we've discussed Melbourne being a patchy market where some suburbs have done 15% growth or north of 15% growth, whereas some are still underwater. Some regionals in Victoria are seeing 20% growth and some are going backwards. So
8:02
How much does a capital city have to play in a regional growth cycle? Really good question. Sort of how we look at different regionals, right? So it's not to say we don't invest in regionals because we do, but the regionals we invest in, Rhys, fundamentally have metropolitan exposure. So ideally within two hours, preferable within an hour. You've got transport nodes that make it extremely accessible. These regionals, completely distant scenario because they fall under sort of the natural economics of the capital city. So your perfect example there is Melbourne.
8:31
We purchased 600 properties between 2017 and 2020 in places like Geelong, Ballarat because that was when Melbourne was going through quite a growth cycle. It was clearly becoming an affordability issue in Melbourne. The fundamentals, a lot of people moving into those key regional areas because the government was spending a lot of money and identified them as key nodes. And their accessibility to Melbourne is within an hour, an hour and a half depending on where you are, Geelong or Ballarat. So that's a fantastic case.
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Same is true for Perth. We bought 300 or 400 properties in the Rockingham area. For those listening on the East Coast, that's an hour south of Perth CBD. So again, a train line that has great accessibility, fantastic coast there. So there's a clear link between that regional and the capital city. Where I'd be concerned in those same markets of other regionals would be an example such as Geraldton in Perth and Westbrook.
9:23
And we had Brendan Tolomey come on the podcast talk about Geraldton. Look, that's one I would say is very speculative because it's five hours from Perth, thereabouts, right? So there's no key access to the metropolitan area. Another area in Victoria could be such as Mildura, very isolated area of Victoria. So these are places just to be cautious. And it's good to define what we see as an isolated regional area versus what we call sort of a metropolitan regional. Your favourite word, Rhys.
9:49
I do like the metropolitan regional. Okay, you've done two really good examples there. Rockingham in WA or close proximity to Perth. You mentioned Geelong compared to Melbourne in 2017. When they go on a run, are they going on a run at the same time as the capital city or before or after?
10:08
Typically after, not always, like every cycle runs a different course. And again, it comes down to supply and demand in these sub markets, as well as population growth. So what's driving that? And typically there's going to be an industry that might be driving some activity. And we've spoken about that about different areas. And that's another podcast to what's driving these sub markets. But typically after, because it's again, it becomes affordability pinch, you see a capital city market run. Great example was Brisbane between sort of 20...
10:33
2017 and 2022 ran extremely hard. And then we started to see a lot of value in comparison to the house prices in Brisbane and Toowoomba. The data started to really improve in Toowoomba and the prices between Brisbane house prices and Toowoomba had never been so vast.
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So there's a clear opportunity that we started to see value in that region that's an hour and a half from Brisbane CBD, great access nodes and a growing economy there. So we took an extremely strong position and fortunate for our clients, that market grew 60% in a very short period of time.
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within two or three years. And that's what you can often see, trying to pick the patterns and the micro data sets for some of these regionals that do have close proximity to capital cities, because they can jump very, very quickly. And because momentum is already built in that capital city, and that might have taken a few years. You look at Perth, it took sort of four or five years to build momentum.
11:22
Brisbane took five or six, Adelaide took four or five. You know, in that scenario about Melbourne and Geelong in the sort of mid sort of 2010s, Melbourne took three or four years and then Geelong sort of went whack within three years, did 60% of growth. So that's why they can be, you know, fantastic markets to get exposure to because they can move quite quickly and you've sort of reduced your downside risk because you're getting exposure to a key core market that, you know, what we deem is sort of A-grade exposure.
11:49
You've mentioned there a lot on the infrastructure and the nodes, I guess, the accessibility to a major hub. What about when we're looking at the history of capital growth, I guess, for that area? Is there anything we should be looking at from a regional perspective?
12:04
Certainly. And then it comes back to the long-term compounding growth of that area. Like a care regional, there's sub-markets within markets. So there's suburbs within these regionals that have produced 6%, 6.5% growth since 1980. That's where we want exposure. So less volatility. They've had typically consistent growth over long periods of time.
12:23
not saturated with access land. So we often talk about that, ideally landlocked suburbs, because that's your risk in regional. You only need one or two larger developments to potentially oversupply the area. So looking at the building approval numbers, as well as commencements versus completions, and really importantly, the local economy, what jobs are in the area, because that's really going to drive a lot of the activity or the migration into that core regional.
12:47
We actually had an investment committee a couple of weeks ago and we were looking at a couple of regional plays and some data sets looked exactly alike. And from an amateur investor or even some of these groups that are pushing certain areas, the numbers look good from an investment standpoint. Yeah, let's talk about Tasmania. We went through this in depth. Well, yeah, okay, it was Tasmania, wasn't it? So I believe it was Hobart. We were looking at Hobart versus Geelong. Geelong, yeah, looking at the fundamentals and comparing like for like on the data sets. Correct. And what were the data sets that were marrying up?
13:16
So what you want to see typically to enter a market early is a period of stagnation. And what was similar between Hobart and Geelong, they'd gone through the same stagnation period. They've been soft now for about five or six years, which is if you look at history in time, markets never run forever, right? You go through growth phases and in A-grade core areas, you typically don't see falls in prices, or if you do, it's quite minor. So it's typically growth phase followed by stagnation, growth, stagnation. So it was good to see that from an opportunity standpoint that
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Rents have risen in both markets, which is fantastic, typically an early indicator, and prices have stagnated. So we're starting to see in these markets, it's actually becoming cheaper to buy than it is to rent. So typically an early indicator that these markets may start to change.
14:01
And there was a couple of, I guess there was a couple of key fundamentals or data sets that we saw a key difference with. What were they? So my biggest concerns and the push around Hobart has been coming for some time. I think there's some investment groups there that have been investing heavily in Tasmania, particularly Hobart and Launceston. Migration race.
14:18
What drives demand? Fundamentally, it's population growth, be that interstate or overseas migration. And on both metrics, from an interstate migration, more people are leaving Tasmania than moving to Tasmania, which had had a bit of a COVID sugar hit because those that want to get out of Melbourne, Tasmania's pretty close, moved down south and now going back. So it's losing more interstate migration. And it's getting very modest, but some overseas migration into Tasmania,
14:44
But when you're classed as a regional for the visa purposes, then people come to Australia, they have to go to regional and Tasmania is one of those, though it is getting some overseas migration. But it's losing more people than it's gaining. That's a huge concern for me. It doesn't matter how cheap it is or how undersupplied it potentially is. If more people are leaving an area than coming, then that for me is a long-term concern.
15:05
When you compare that to Geelong, Geelong's getting large overseas and interstate migration. Rents are improving dramatically. Vacancy rates are coming off significantly. We're starting to see dwelling approvals reduce quite significantly. So you would argue that we are forecasting and undersupplying that market in the near future. So when we compared the two, it became very evident that Geelong was a better market to invest in.
15:26
And it goes back to the key point you mentioned earlier about the accessibility to a major hub. What's the closest? Melbourne? You've got to get a ferry or a plane away, so it's not a viable option to commute. The spirit of Tasmanian as a commute for daily works, probably not.
15:42
Not ideal. Okay, let's touch on you mentioning there in terms of some of the volatility, I guess, with some assets. What we should be looking at in terms of a good regional player, some of the suburbs with long-term compounding growth. What's some examples of some areas you've seen or you've followed the data over the years where there's some serious volatility? So, you know, high highs, lowest lows type set up.
16:05
Another thing you really want to look at is the employment in that area. And then ideally, it's not reliant anymore. Ideally, less than 20% exposure to one industry. But in regionals, that's typically quite difficult to see. Geelong's a good example where it exists. No more than 30% exposure to one industry because typically, it's going to be mining or manufacturing or one of those things that's quite volatile. So to avoid volatility, look at the local industry because all of a sudden, if a major manufacturer pulls out of that market or it's exposure to a port or a mining town, that's where you're going to see those large fluctuations.
16:35
When we're looking at regional plays, we mentioned earlier, obviously, it's easier access to gain some of these properties because it's not as competitive. There's off-market opportunities, affordability is a play you mentioned as well in terms of you're going to get a cheaper price point than a capital city. What about yields? Obviously, the biggest kind of debate an investor has whether they're chasing yield or capital growth. For a regional play, should they be looking at something with a higher yielding asset or purely be focusing on the capital growth?
16:59
That's typically why a lot of these investors go to regional, right? It's because of the access to cash flow. And the more speculative the market, typically higher the yield. So they almost become neutrally geared in some instances, right? So if you are going into a regional, it's very important that you are getting a stronger yield because if you're not, you're purely investing there for speculations.
17:19
almost tears on the essence of why you buy commercial. You buy commercial for cash flow, capital growth is a byproduct, but you're not investing in commercial property for capital growth. You're buying that for cash flow. In some of these more speculative areas where there is high cash flow, you have to have the view that that is a key reason why you're buying in that area because if it's not, you should be investing in a more blue chip market. Yeah. Is there any risks with regional players that aren't involved with capital cities? So
17:44
Yeah, vacancies, huge vacancies. And this is the thing, cashflow might be great now because we're in the most undersupplied market Australia's ever been in. But look at these markets seven to nine years ago, we're seeing vacancy rates, sometimes in the double digits. You're not renting this thing out, you can't give it away. So that's a huge risk. Liquidity, being able to sell these assets, that's my biggest concern. Everyone's going and saying they're getting a bank valuation, they bought it for 400, it's now worth 550.
18:08
then it's worth $600 on the bank valuation, then it's worth $700. Okay, when the music stops, bank valuation can be whatever it wants. But if there's no buyers out there, you can't sell it. Like that's my concern. Vacancy rates, liquidity, being able to just actually sell these in a tighter market or when things move. Is insurance as high there as well? Absolutely.
18:25
Yeah, and that's a really important point, particularly exposure to flood risk. Northern Territory and Northern Queensland, absolutely. Your premiums you pay reduces your net yield significantly, so understanding the true cost of that. Your gross yield, so what your gross yield is is typically...
18:41
whatever your rent is annualized, then divided by what you pay for the property, your net yield is after all costs. So you take out your property management fees, your land taxes, all those things. It's what your true really take home money is. You'll find on these things, sometimes your gross yield might be seven, sometimes 8%, but your net yield might be like three because the insurances are so much higher. And the cost of whole properties is significantly higher because obvious reasons, weather, ACs, older properties, regional towns, typically, you know, harder to get trades, those sorts of things.
19:09
And most people I don't think are looking at that net yield position. All they're hearing is the gross yield position. And, you know, I constantly, we get it as a business where we're getting people after this 6%, 7% yielding asset, which, you know, if you're looking from a net perspective, that's going to be 10% or something like that. And it's going to be in these higher risk areas, which typically isn't what an investor should be going for.
19:30
Yeah, no, not at all. And lots of portfolio reviews we're doing, we're getting clients constantly trying to get these out of their portfolio. And often the market's not there. It's harder to sell regional assets when they're not the flavor of the month. Once the investors are not buying and the local owner occupiers can't afford the price that the investors are paying, that's when the music stops and it's ugly.
19:51
And I mean, that's a good point you mentioned there about trying to sell off an asset when a market calls. Should an investor have a different strategy when it comes to exiting a regional asset versus a capital? Without a doubt. City asset? Yep. You're never going to pick the top of the market, but certainly when there's FOMO in the market and things are flying, that is the time to get rid of your regional. That's why I got in the last nine months, Reese, I've sold all my regional assets out of the portfolio.
20:17
They've continued to rise, yes, and I know that. And they'll probably continue to rise for another six months. But I've sold them and someone's paid big dollars to buy them because I know when the music stops. And I don't know when that's going to stop. Anyone that tells you that is lying. And these are speculative regional assets, not the ones that are the house. Exactly. It's much better to sell before the top of the cycle than after.
20:37
because after there's no buyers before everyone wants a piece of it so yeah i've sold some assets likely prematurely but they've done well they serve their purpose in the portfolio like i spoke about on before previously on the podcast and always about just trying you're never going to always pick the bottom and the top but if you've got a strategy in mind and you stick that strategy well as long as you your fundamentals are strong and you're getting uplift you know selling maybe 10 or 11 on the cycle instead of one o'clock then it's serving the purpose of my portfolio
21:02
Yeah. Lachlan, you've bought speculative assets. You said you're selling off in the next six months or you have sold in the last six months. You've obviously met with thousands of clients over the years who have probably had these in their portfolio. Does anyone get a regional asset for a long-term hold or is it purely that short to medium-term strategy to get the uplift?
21:21
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21:50
Unless it's good exposure to capital city, and then there's a case to keep that in the portfolio, they're typically just stepping stone assets. And my advice is typically for them to treat them as that. Because when a market, if you look at a capital city, when they stagnate, like I said, the example there, Geelong, Melbourne, we're talking four to five years in stagnation. Even the likes of Hobart, four to six years in stagnation.
22:13
An isolated regional may stagnate for a decade. And typically, in most instances, these are the markets that come off and can come off 30%, 40%, sometimes 50%. So then the argument is, do I want to hold an asset? For 10 years, it goes negative 30% or 40% growth. The answer is naturally no.
22:29
So I see them more as speculative stepping stone assets. And that's what I've bought them for. It's almost like a sugar hit. They make up less than 10% of my portfolio. It's glorified gambling. I'll buy something in Gladstone, ride the market. Okay, it worked. If it didn't work, it wasn't the end of the world because it's less than 10% of my portfolio. But it's come off. Let's sell it when there's still FOMO in the market. Cash out. Use that to pay off some debt or get access to a better market.
22:51
You've mentioned what your plans are doing, but let's summarise for a 2026, what sort of regional assets should people be looking at in 2026? Key access to a major capital city is super important and making sure that that regional still has strong economy. So it's got a diverse range of workforces in the area. That's really, really key. You just don't want to get too focused on something that's so specific to a
23:15
one particular industry. Mining is one of those. And then the third piece is understanding the migration patterns, making sure there's more people coming into that regional than it's leaving. Sounds simple. It's not because that data is extremely hard to find, but turns out you're going to give it to our listeners for free. So you're a good bloke, aren't you? I'm a very good bloke. Okay. So in summary, the regional assets, there's probably two types of assets there. You've got your speculative assets, which are going to have the high highs, potentially the low lows. Isolated regionals typically dependent on one to two industry
23:45
And then you've got your favourite word, the metropolitan. Metropolitan Regional. So ideally within an hour, maximum two hours of a key capital city. Yeah, perfect. Okay. You've been listening to Folio Property Podcast.
24:04
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