Australia's Regional property markets are now outperforming capital cities, with dwelling values up 3.2% over the three months to January compared to 2.1% across capitals, driven by affordability pressures, internal migration, and tighter competition outside the cities, according to a Wednesday report by Cotality.

Momentum is broad‑based and accelerating, led by regional Western Australia, up 6.1%, with Wagga Wagga the strongest individual market nationwide, up 8.1%, while New South Wales and Victoria lag.

"Affordability remains a powerful driver of buyer behavior. With capital city prices still near record highs and stock levels tight, many households are once again looking to regional Australia for greater value and liveability," said Cotality's Head of Research for Australia, Gerard Burg.

Selling conditions remained most competitive in Western Australia and Queensland, with median time on market at 20 and 24 days respectively, and vendor discounting averaging 3.3% in both states.

Rents also rose faster than their city counterparts in the three months to January, with regional rents rising 1.6%, slightly ahead of the capital cities, which were up 1.4%.