Is now the time for a tree change? An expert's perspective

Whether you’ve been hit hard and need to find new wealth-building or cost-saving strategies, or want to leverage the additional flexibility of remote working, you too might be considering a tree change.

As the founder of a property business with a focus on regional Australian investment properties, I’m a strong advocate of tree changes, albeit I do urge buyers to do their due diligence and remember that the grass isn’t always greener on the other side. In this article I cover:

• What is a tree change and why consider it?
• How has COVID-19 impacted where people are choosing to live?
• What should I consider before making a tree change?

September’s home value results showed regional markets have continued to outperform the capital cities with a 0.4% rise in the combined regional index and a 0.2% drop across the combined capitals. Download the report: https://t.co/BWYkC6QvtD pic.twitter.com/TPdp7eELMr

— CoreLogic Australia (@corelogicau) October 1, 2020

What is a tree change and why consider it?

A tree change is a relocation from a capital city to a smaller town or city outside of Sydney, Melbourne, Brisbane, Perth, Adelaide and Canberra.

According to Propertyology Head of Research and Managing Director Simon Pressley, more than 52,650 Australians have tree-changed to a regional centre over the past three years, and the Regional Australia Institute suggests overall, 9.45 million Australians call a regional centre home, so the appeal is certainly there.

One of the major reasons people are choosing to make a tree change is to get more ‘bang for your buck’. You can imagine what $500,000 gets you within 10 kilometres of the Melbourne or Sydney CBD, versus 10 kilometres from Mildura or Newcastle.

An equivalent property in a regional town is often cheaper to a city dwelling, and can offer a quieter lifestyle, fewer traffic jams, more open spaces, and less high rises. Regional towns also often have a great sense of community.

First home buyers have also increased, with the number of new loan commitments in August for first home buyers hitting the highest level since October 2009, according to Canstar finance expert Steve Mickenbecker. Mr Mickenbecker said it was likely a response to government support measures.

This melting pot of changes may be contributing to a ‘perfect recipe’ for a ‘tree change’ shift.

How has COVID-19 impacted how people are choosing to live?

COVID-19 has led many of us to reassess what’s important. Michael Yardney provided some insights into the trends of property listings in regional Victoria, suggesting Australians are questioning their need to remain in cities for work. He pointed to Domain research that showed more Victorians were looking to regional areas of the state like Hume, Shepparton and Bendigo to find their homes, and argued that regional Victoria experienced the highest level of interest in at least four years in the months leading up to July. The pandemic has proved we can work smarter, and many of us have started working from home (‘WFH’). Research from Roy Morgan shows over 4.3 million – 32% of working Australians – have been doing this since the start of the pandemic and it has quickly become the new ‘normal’.

Interestingly, the research shows that those aged 35-49 (38%) are the most likely to be working from home and over half of people working in Finance & Insurance (58%) and Public Administration & Defence (51%) have been working from home followed closely by those in Communications (47%). Far less likely (and not surprisingly) to be working from home are Australians working in more ‘hands-on’ industries such as Manufacturing (16%), Transport & Storage (15%), Agriculture (13%) or Retail (12%),

In my own neighbourhood in Melbourne, local traffic jams have been replaced with the sight of more people enjoying a new ritual of a morning walk with the dog, exercising at local parks and, dare I say it, being able to sit down for breakfast and dinner with loved ones more regularly to share a meal, rather than rushing out the door or arriving home too late. Many of us have had a taste of additional freedoms and work flexibility and want more.

One regional property market saw prices increase by more than 10 per cent over the last 12 months despite the pandemic. #9News https://t.co/4q77vd1KOV

— 9News Australia (@9NewsAUS) November 23, 2020

What should I consider before making a tree change?

I could go on about the potential pros of relocating to a regional city – these can include affordability, cleaner air, a sense of community spirit, reduced commuting time and a more relaxed lifestyle, just to start. But you might be giving up common pros that come with capital city living, such as more employment options, access to cultural events and better access to medical services and public transit. Things such as groceries and petrol can also be more expensive in some regional areas.

As a buyers advocate, I don’t think it necessarily has to be one or the other. One option could be living in the city and investing in a regional area. This gives you the opportunity to maintain consistency with a career or your children’s education, while still building wealth through regional property investing. For example, you could look out for properties in the low to mid $200,000s with rental yield of about 6% in regional areas using equity in your capital city home, meaning you could have the best of both worlds. It also means if the time comes to relocate down the track, you may have a property that’s yours to move into.

If you want to get into the property market and have access to federal and state government rebates and incentives, such as the Australian Government’s First Home Loan Deposit Scheme (FHLDS), now may be a good time to consider your options. Keep in mind, however, that if you are a first home buyer and want to claim the FHLDS, you’ll need to live in the house within six months of settlement so you cannot use this for an investment property.

Data from CoreLogic (formerly RP Data) shows six of the seven state regional markets (except Regional South Australia) rose in October – with combined regional prices up 0.9% while combined capital cities rose 0.2%. In the seven months since March, regional property prices have been more resilient than capital city prices, giving consumers the confidence to buy in these markets. CoreLogic’s data further reveals regional prices are up 1.7%, while the combined capitals index (for Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart, Darwin and Canberra dwelling values) has declined 2.3%.

During a recent property search in Ballarat, I crossed paths with a local mortgage broker I have known for many years. He shared with me that he is seeing more and more people trading in their $1 million homes in Melbourne and relocating to regional centres to purchase an equivalent home for $400,000–$500,000 – and in some cases, for less than this. Such regional home buyers are shedding debt and may even have money left over afterwards. With a goal of enjoying life more, they’ve decided the pros outweigh the cons when it comes to moving regionally. Have you considered a tree change?