Regional versus Capital: Which is the Best Investment Option

Some people insist you should only invest in capital cities. Others swear that regional centres are the fastest way to create wealth. 

What’s the answer?

Let’s unpack some hard numbers to get

to the truth. 

Capital growth is naturally the primary metric to look at. 

And while capital city values are higher (as you’d expect), they’re also growing at a higher rate. 

In the past 12 months, the median price in capital cities grew 6.8%, leaving the regional areas floundering at just 2%. 

Still, it’s worth pointing out that capital city price movements also tend to be more volatile. 

When they’re up, they’re really up. But when they’re down they take a bigger hit as well. 

However, since the market moves up far more often than it moves down, this is an advantage in favour of capital cities. 

You can also see this play out in our second metric, that is, median days on the market. 

This is a really useful number to follow because it’s how quickly a house sells after being listed. 

The quicker it sells, the more buying pressure there is. Think of a stampede of eager buyers flooding open homes ready to put in offers, instead of a trickle of half-interested locals. 

That’s buying pressure. 

You can see for most of the graph there’s a significant gap between capital cities and regional areas. 

And while the gap almost disappeared around 2020 – 2022, this had more to do with people leaving capital cities to the country as Covid opened up the opportunity to work remotely. 

Since then the gap has widened again and continued to grow. 

The third metric to consider is rental yield. 

This is one factor where the regional areas have the goods over capitals. 

The combined rental yield for regional areas makes for an impressive reading at 4.4%, leaving the combined capitals languishing at a much lower 3.5%. 

So this gives a big tick to the regionals. Mind you, the capital cities are closing the gap at the moment.

In the past 12 months, the rental rates in capital cities soared 9.7% higher, compared to an increase of just 4% in regional areas. 

Still, while rents are rising faster in capitals, the yields there are a long way behind the regional areas. 

So, what is the answer - capitals or regionals?

Well, I hate to disappoint you by saying … it depends.

If you’re on a high salary and rental yields are not as important then capital cities will suit you better. 

However, if the rental yield is an important part of your strategy then it might be worth a day trip out of town to see what’s available. 

The extra income might be what you need first up.

There are also major regional cities such as Newcastle, Wollongong and Geelong which have many of the characteristics of small cities, and the characteristics of big country towns all at the same time. 

Plus you need to remember that the best investing comes from digging deep. And some capital cities offer far better prospects than others, and even certain suburbs in these cities outperform others. 

Our clients invest in capital cities which have much higher rental yields than the average 4.4%.

Likewise, some regional centres have shot up in value over the last few years while others have stagnated. 

These figures are an excellent start to understand the different markets, however, the answer to which is best comes down to your circumstances and your goals.