Growth in Victorian property prices has slowed since the highs achieved in 2007, but rental yield continue to rise.
Despite the slowdown in property values, Melbourne's property market has been relatively robust amid the global financial crisis - thanks to its strong fundamentals.
"The reason Melbourne remains so resilient is the demand and supply issues," says Paul Smith, marketing director of property research firm Braxton Chase.
"Population continues to grow at a fast rate, with over 60,000 migrating to the city over the last financial year, more than any other capital city and this trend is set to continue mostly due to international immigration. This is likely to be one of the major drivers of capital growth and rental yield in the medium term.
Residex data showed that rents in both apartments and houses have increased by $40 per annum between September 2007 and September 2008 to reach a median of $330 and $370 respectively.
"Ongoing affordability issues, combined with strong population growth, is continuing to fuel expectations of strong rental growth for 2008 and into 2009 in most areas, particularly within the inner and middle rings," says Chris Coonan, residential director at Landmark White Group.
While the undersupply of new dwellings continues to "cause headaches for renters", it's great news for property investors says Smith.
"Vacancy rates remain very low at about 1% and this is giving investor's added confidence," Smith says.
"This is not the case in all suburbs, with several inner city localities - Docklands, Southbank, and the CBD, for instance - heading towards a potential glut of new units."
Those suburbs with the brightest outlook for the year ahead continue to be the middle ring suburbs, he says, particularly the Transit Cities and those undergoing or targeted for urban revitalisation.
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