Chasing high rents
7 August 2006
Large capital gains may snare the headlines but rental returns can be just as critical for property investors. Rent, after all, is what investors rely on to pay off a large chunk of their investment loans.
The August issue of Australian Property Investor magazine gives investors the keys to finding high rental returns, while also spelling out the associated risks.
“It’s getting harder and harder to find properties with high rental returns but as our research found, they do still exist,” API editor Eynas Brodie said.
“Apartments and townhouses are currently delivering better rental yields than houses, but house rents are rising in every capital city. This is good news for investors, because in recent years rents have struggled to keep up with rising house prices. Now that prices have steadied, people should start seeing better results from their investments.”
But where are the highest rental returns?
Capital cities
Across Australia’s capital cities, gross rental returns on houses remain at around 4 per cent. Based on median house prices and rents for three-bedroom houses, the best you can do in the major cities is a 4.8 per cent average return in Darwin.
Melbourne (5.4 per cent), Hobart (5.3 per cent) and Canberra (5.2 per cent) provide the best apartment yields, while Perth has the lowest, at 4 per cent.
Queensland
To find the best returns around Brisbane, it pays to head south. Halfway to the Gold Coast in the Logan City area, investors can find suburbs where typical houses provide returns around 6 per cent.
In regional Queensland, the Rockhampton region is a good place for high returns. It’s a major regional centre but its house prices remain very low and rents relatively high.
New South Wales
The best returns for Sydney houses are found in affordable suburbs such as Campbelltown and Cambridge Park (both 4.3 per cent)
Elsewhere, the regional towns of Parkes, Forbes, Coonabarabran and Glen Innes are relatively strong performers for yields.
Victoria
You have to head to the outer reaches of metropolitan Melbourne to find decent yields. Melton South in the far west is a standout, providing 6.4 per cent based on a median house price of $170,000 and an average rent of $210. Kurunjang, Frankston North, Doveton and Laverton also all provide 5 to 6 per cent.
South Australia
Average returns in Adelaide are only 4.3 per cent but it’s generally easier to find higher returns there than in the eastern capitals. In the northern reaches of Adelaide, for instance, suburbs such as Elizabeth and Davoren Park can provide yields up to 7 per cent.
Outside of the capital city, investors can find houses yielding between 7 and 8 per cent in the industrial port town of Whyalla.
Western Australia
Rental yields are falling as the west’s price boom continues. Even returns in mining towns such as Karratha, Port Hedland and Geraldton have dropped back to 6 to 7 per cent.
In Perth, it’s hard to do better than 4.5 per cent, although vacancy rates are down around 1 per cent, which should produce rental increases.
Tasmania
Four years ago it was easy to find returns of 8, 9 and 10 per cent in Hobart and Launceston. But prices have doubled since 2003, meaning yields have eased back to the 4 to 6 per cent range. The good news again is that rents are on the rise.
Northern Territory
Income returns in Darwin are under 5 per cent for both houses and units. But the satellite town of Palmerston offers average yields around 5.5 per cent.
Outside the capital, Alice Springs offers about 5.5 per cent for houses and 6 per cent on units and townhouses. Houses in Katherine can return about 7.5 per cent and units and townhouses 9 per cent.
Mining towns – for risk takers only
In the slipstream of the commodities boom, house prices in key mining towns have taken off and the returns aren’t as hot as they once were. However, opportunities remain for those investors willing to take a risk on these usually volatile areas.
Some of the opportunities outlined in API include Roxby Downs in South Australia, Mt Isa in Queensland and Newman in Western Australia.
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© Australian Property Investor magazine - http://www.apimagazine.com.au/ Reproduced with permission.
