What are the best Australian suburbs to invest in property?
Property investment is always a challenge and recent market conditions have made it more of a risk.
However as the market begins to pick up, sticking to some hard and fast investment rules and taking emotion out of the equation can allow you to reap the benefits.
Investors pulling out of the Australian property market has been dramatic in recent years — with activity dropping 45 per cent since the peak of the market nationally in 2016.
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This has been due in part to greater restrictions on lending and uncertainty about market conditions.
But as those conditions ease, opportunity is again presenting itself for the savvy investor who can now look to capitalise.
THE ‘IMPOSSIBLE’ INVESTMENT
Finding a property that provides both strong capital growth and high rental yields is “generally impossible”, says REA Group chief economist Nerida Conisbee.
“The last market to enjoy this was Hobart, but only if you bought four years ago,” she said.
Ms Conisbee points out that the capital city suburbs currently enjoying the highest rental yields in Australia: Adelaide’s Elizabeth Downs (7.7 per cent), Elizabeth North (7.6 per cent) and Davoren Park (7.5 per cent) are cheap by most standards with median house prices at $175,000, $174,500 and $170,000 respectively through to the end of July.
The average median house price across Adelaide is $470,000, $900,000 in Sydney and $700,000 in Melbourne.
There is significant rental demand for these suburbs but Ms Conisbee said they are unlikely to enjoy any major urban renewal — which can drive price growth — soon.
So while there is a good yield there, any significant price growth is unlikely.
The year-on-year change in the median house price for Elizabeth Downs, is virtually the opposite of its rental yield increase, recording -7.9% growth.
In contrast, North Adelaide boasts a lesser household rental yield of 3.3 per cent, but it has enjoyed year-on-year growth of 34 per cent with the median house price now listed at $1,157,500.
Brisbane’s Chelmer has a similar rental yield of 3.6 per cent, but its year-on-year house growth has been 26.9 per cent to $1.25 million.
In Sydney, Vaucluse’s average rental yield on a house is 2.4 per cent but it has enjoyed 21 per cent capital growth over the last year.
Parts of Melbourne have bucked that trend, however.
Highett has enjoyed 11.3 per cent year-on-year growth for units with a rental yield of 4.2 per cent.
Caulfield has had 11.7 per cent capital growth for units with a yield of 4 per cent. However, just 36 dwellings changed hands in that location, so a few big sales could have thrown that average out.
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Portsea’s average median house sale of $2.237,500 grew 16.2 per cent, one of the best in Victoria, but with a rental yield of just 2.6 per cent.
A high yielding investment property is considered one with returns of four per cent or greater.
WHAT TO LOOK FOR
Ms Conisbee has pointed to urban renewal as a driver of price growth and Vaucluse’s position as NSW’s leading suburb for capital growth for houses over the past 12 months points to what buyer’s agent Simon Cohen refers to as “the blue chip of blue chip”.
“If you are looking to invest you can’t go wrong in those suburbs. They offer that capital growth that all investors are looking for,” Mr Cohen from Cohen Handler said.
If looking for a slightly cheaper option, Elizabeth Bay is your next best bet, ranking in as NSW’s No. 1 capital city suburb for year-on-year unit growth of 24.4 per cent.
It boasts a median unit price of $1.1 million. The median house price in Vaucluse is $6.25 million.
As the quality of apartment construction becomes an issue for many buyers, Ms Conisbee said Elizabeth Bay stands out for the high standard of its older apartment blocks.
Mr Cohen said other suburbs that should be enticing to investors are those that have already experienced urban renewal or those that haven’t fallen behind.
“You need to look at where people will want to live and to continue to want to live,” he said.
“They want to be near hospitals, they want to be near a Westfield. So if as an investor you are buying in suburbs like that, it is usually a good move. Because the capital growth is there and when it comes time to sell there will always be buyers lining up. But you do need to do your research.”
Mr Cohen also stressed that buyers need to avoid becoming emotionally attached to a property if they are planning to lean on it as an investment and not live in it.
North Melbourne, for example, is one suburb earmarked by the Victorian government for urban renewal.
It’s median house price has fallen 6.6 per cent to $1.14 million.
In Brisbane, the Cross River Rail from Dutton Park to Bowen Hills (median unit price of $374,000, down 6.5 per cent) is currently underway.
Ms Conisbee said some mining towns were experiencing strong capital growth such as Whyalla Norrie, Dysart and Blackwater.
But the troubles experienced in the Perth market over the past five years has highlighted the problems in investing in such areas.
TOP 10 AUSTRALIAN LOCATIONS FOR CAPITAL GROWTH
1. Whyalla Norrie, SA, 53.3 per cent, median price: $138,000*
2. Dysart, Qld, 41.8 per cent, $95,000
3. Blackwater, Qld, 41.1 per cent, $127,000
4. Waikerie, SA, 36.2 per cent, $248,500
5. Newman, WA, 35.5 per cent, $210,000
6. North Adelaide, SA, 34 per cent, $1,157,500
7. Beaufort, Vic, 27.2 per cent, $273,500
8. Chelmer, Qld, 26.9 per cent, $1,250,000
9. Naracoorte, SA, 26.2 per cent, $265,000
10. Stratford, Vic, 26 per cent, $321, 250
19. Vaucluse, NSW, 21 per cent, $6,250,000
41. Rosebery, Tas, 17.8 per cent, $86,000
41. Longford, Tas, 17.8 per cent, $335,000
1. Moe, Vic, 59.3 per cent, median price: $129,000
2. Blackburn, Vic, 40.6 per cent, $731,000
3. Pialba, Qld, 33.3 per cent, $320,000
4. Narooma, NSW, 32 per cent, $270,000
5. Noosa Heads, Qld, 27.7 per cent, $875,000
6. Fremantle, WA, 24.4 per cent, $535,000
7. Elizabeth Bay, NSW, 24.4 per cent, $1,110,000
8. Cairns City, Qld, 23.7 per cent, $470,000
9. Geelong, Vic, 22 per cent, $555,000
10. Carseldine, 21.5 per cent, $395,000
14. Howrah, Tas, 16.2 per cent, $420,000
42. Salisbury, SA, 9.4 per cent, $222,000
* Year-on-year growth and median price as of July 31, 2019