Victoria’s real estate market is witnessing a significant shift as young first-home buyers increasingly seek affordable housing in regional areas.

According to recent data from the Australian Bureau of Statistics (ABS), first-home buyer loans in Victoria soared to 4,202 in July – the highest number in nearly two years.

This surge reflects growing confidence among young buyers and a trend towards exploring housing options beyond Melbourne.

Nationally, the Commonwealth Bank of Australia and the Regional Australia Institute report that the flow of people from cities to regional areas is now 16 per cent above pre-pandemic levels.

The Regional Movers Index indicates a 27 per cent increase in people moving from cities to regional areas compared to those moving in the opposite direction during the June quarter.

Over the past year, 11.2 per cent of movers have relocated from cities to regions, with three-quarters settling in Victoria or NSW, up from half of all movers last year.

Government incentives such as the First Home Owner Grant and stamp duty exemptions are boosting this trend.

Regional Victoria hotspots such as Ballarat, Bendigo and Geelong are seeing heightened interest from first-home buyers eager to take advantage of lower property prices. Greater Geelong, in particular, has emerged as the most sought-after regional LGA in Victoria.

And this affordability attraction has equal appeal to property investors.

In contrast to Melbourne’s median house price of more than $900,000, regional Victoria offers numerous more affordable options.

Geelong’s median house price is $720,000, while Ballarat and Bendigo are even more budget-friendly at $550,000 and $490,000. This affordability makes ownership accessible for buyers who might be priced out of Melbourne’s market.

The work-from-home trend, enabled by technology and accelerated by the pandemic, has also contributed to this shift.

Many Victorians now have the flexibility to work remotely, making it feasible to live in regional areas while maintaining their careers. This flexibility enables buyers to enjoy a better lifestyle balance without sacrificing their job connections in Melbourne.

For investors considering buying in Regional Victoria, and concerned that prices have not increased recently, it’s worth remembering that longer term Victoria has an exceptional track record on capital growth.

Regional Victoria ranked fifth in the nation in the recent PIPA research into where the best capital growth has occurred in the past 20 years – ahead of Perth, Sydney, Melbourne, Canberra and the regional markets of NSW, Queensland and Western Australia.

According to the PIPA research, home values in Regional Victoria grew 187% over the past two decades.

Another factor in favour of investors is that Victoria’s rental market is shrinking, which means there are fewer vacant properties.

New data from Victoria’s Department of Families, Fairness and Housing reveals a sharp contraction in the state’s rental market, with active rental bonds dropping by 21,712 in the year to June 2024.

This marks the first decline in recorded history since 1999, representing a significant shift in market dynamics.

PropTrack has attributed much of the contraction to Victoria’s rising property taxes, stricter rental standards and sustained high interest rates, which has made rental property ownership less attractive and more expensive for landlords.

While around 50,000 new loans were made to investors during the 2024 financial year, PropTrack noted that the influx was insufficient to offset the exodus, leading to a net loss of rental properties.

The data also indicated that the churn rate for sales by investors was significantly higher than a typical year, further intensifying the decline.

While there are clear reasons why investors have been deterred from investing in Victoria, the trends present opportunities for investors who are interested in Regional Victoria’s long-term growth record, its relative affordability and the growing shortage of rental properties.