Are you on the lookout for a suburb that you can get into for $500,000 or less that has excellent investment prospects? There are plenty of options across the country, but be warned, investors in some well-known hotspots may get their fingers burnt.
Westpac and Herron Todd White have released their Property Report for April - June 2012, and it offers up some interesting insights into where the report's authors consider the nations hotspots and not-spots to be – for investors on a $500,000 budget.
In Sydney, the report suggests that investors on a $500,000 budget are likely to target units or lower quality houses in the city’s western suburbs – adding that opting to invest in an apartment “will generally deliver a wider choice of locations, stronger rent returns and more stable capital growth”.
With these thoughts in mind, it suggests targeting the apartment markets in the central western suburbs of Auburn for the strongest yields – typically between 5.4% and 5.7%. The report also suggests that this is a suitable area for the budget conscious, with “reasonably modern” two-bedroom apartments being on offer for the area’s median price of $370,000.
If you’re willing to sacrifice strong yields for longer-term capital growth, however, you’d do well to target inner ring suburbs such as Neutral Bay, Leichardt and Randwick. These areas, says the report, “have historically recorded stable price gains, and this is expected to continue over the coming years”.
Away from Sydney, the Hunter region continues to be tipped as an investment hotspot – especially for the budget conscious in search of cash flow positive property.
“Rental vacancies are very low at 1.5% and rental growth is strong, taking many properties close to being cash flow positive. It is worth focusing on areas with proximity to major employers as these offer year-round tenant demand. Waratah, Jesmond and Shortland for instance are all close to either major Newcastle hospitals or the University of Newcastle,” says the report.
“Further afield, Singleton, Rutherford and Aberglassyn are all benefiting from the strong mining sector and rental growth in these areas is very healthy. Plenty of new housing stock is becoming available, and these properties offer more generous depreciation allowances than older dwellings.”
Taree West also gets a mention for its cheap, yet high-yielding, houses:
“The older part of Taree West, which was developed pre-1985, offers excellent value for money with a good selection of houses currently listed for sale for less than $250,000. Some former Department of Housing properties can be purchased for less than $125,000. These properties are returning rental yields in the order of 7% to 8%.”
In the nation’s capital, the report suggests that the city’s inner north and inner southern suburbs offer plenty of appeal – with investors on a tight budget being able to afford a one-bedroom, one-bathroom unit.
“These locations offer good proximity to the Canberra CBD, government employment centres, schools and other amenities, and rental yields of around 5.5% are achievable at this end of the market,” says the report.
In Melbourne, the report suggests that investors on a tight budget should consider St Kilda East.
“Yields range from 4% to 4.5%, and the median unit price of $465,000 makes an apartment the most likely choice for would-be landlords with a spending limit of $500,000,” it says. “In fact, affordability – particularly in the apartment market, is encouraging investor interest in St Kilda East, and the location just six kilometres from the Melbourne CBD, is very appealing to tenants with rental demand remaining strong.”
Outside of the state capital, the big three of Geelong, Bendigo and Ballarat are all seen as good options for budget-conscious investors who are looking to get more bang for their buck.
In Brisbane the report’s authors highlight the “relatively basic properties” that are on offer in the city’s middle ring suburbs for a budget of $500,000. Mitchelton, Keperra and Kedron, for example, are within 10km of the CBD.
“Properties in these locations are currently providing rental yields of 4.5% to 5%, however from a growth perspective investors should aim for larger allotments as these provide the option to subdivide in the future,” says the report.
Other highlights within the state include Chinchilla, where $500,000 will buy you a new four-bedroom furnished property. The report notes that resource companies in the area are paying weekly rents of between $600 and $1,700, on leases of up to two years.
Gladstone is another strong performer that the report’s authors highlight, noting that the construction of several large industrial projects has placed considerable pressure on rental accommodation as the workers head to the city in their droves. They remain cautious on the area’s future prospects, however:
“Investors already in the market have enjoyed strong short term capital growth to date however once construction of key employing projects is complete there is a real risk of a market correction.”
In Adelaide, it is claimed that motivated investors are well positioned to secure a bargain. The report notes that $500,000 would secure a well-located one- or two-bedroom townhouse or apartment close to the CBD, or small cottage or attached dwelling in the eastern suburb of Norwood, or Parkside to the south.
It warns however to steer clear of new constructions in the outer, particularly northern, suburbs:
“Prices in these areas are being inflated by poorly informed investors, many of whom are interstate buyers.”
The report suggests that investors can pick up a two-bedroom inner-city apartment for $500,000, adding that investors will be attracted to the strong 5-6% rental yield that are on offer in the CBD. Additionally, the expected growth in Perth’s workforce over the next few years is expected to give demand for accommodation – and therefore weekly rents – a further boost.
The Joondalup city centre is another 5-6% yielding apartment market to keep an eye on.
“The expansion of the northern corridor and further developments within the Joondalup Town Centre is likely to support yields over the near term. Three bedroom apartments in the area are priced between $400,000 and $500,000 depending on age, size and quality,” says the report.
In the state’s south-west, South Bunbury, Bunbury and areas north of the Bussel Highway from Abbey through to West Busselton, have held their value despite cooler market conditions, says the report, and capital growth is expected to be around the corner. Additionally, there are plenty of opportunities to add value to the older houses that the area offers.
Other areas in the south-west that are worth keeping an eye on include Dunsborough, Dalyellup and Millbridgwith, says the report, with buyers being well-placed to negotiate a decent discount in these spots.
Kalgoorlie, too, hits the property investment radar, as increased enquiry rates and sales volumes in the area suggest a property market recovery.
“Kalgoorlie’s rental market is strong and healthy yields are available for investors. As a guide, a $475,000 conventional house in the suburb of Somerville can achieve weekly rents in the order of $650 to $700 – a gross yield of around 7.6%,” says the report.
It adds that the mining boom and strong gold prices should see prices stabilise and head upwards, but offers the ominous warning that “there are strong concerns in Kalgoorlie about anti-social behaviour”.
The Tassie market is earmarked for its affordability, and the report notes that investors with a $500,000 budget could choose to pick up multiple properties in a number of the island’s cheaper markets.
“A wide range of suburbs have had numerous sales of houses or units below $150,000 over the past 12 months – among them, Scottsdale, Ravenswood, New Norfolk and Bridgewater,” says the report. “Even in the cities of Launceston, Burnie and Devonport, a reasonable house or unit in a well-located suburb with good local amenities can be purchased for $250,000.”
It adds that rental yields tend to be stronger in Tasmania than on the mainland, thanks to its low buy-in prices, but warns that strong yields are likely to come at the expense of long-term capital growth.
In terms of hotspotes, the report’s authors single out Sandy Bay and Newnham:
“Both locations benefit from proximity to the University of Tasmania and Australian Maritime College campuses, which provide a large pool of prospective tenants. Rent returns in these areas can be seasonal based on the academic year though this can be compensated for by charging an increased rent or by letting on a per room basis.”
Investors who have been keeping an eye on the Tassie market will no doubt have read a fair bit about the proposed Gunns Pulp Mill development in the Tamar Valley. The report notes that there is evidence of property investors making speculative buys in the area in anticipation of the boost to the local market that the development would bring.
It warns, however, that the Gunns project is far from a done deal, noting that a major investor in the mill – New Zealand businessman Richard Chandler – bailed out of the deal in early March.
“Investors in this region need to be wary of possible price falls if the mill doesn’t get the green light. This has been something of a stop/start project to date, and the local property market has experienced price falls of up to 20% on past occasions when setbacks have been announced,” says the report, adding that – even if the development does go ahead – capital growth in the region’s property markets is expected to be stifled by local employer TEMCO suspending its operations for three months.
The Northern Territory
If you’re planning to buy in Darwin on a budget of $500,000, then you’ll most likely be targeting units within the CBS or city fringe areas such as Larrakeyah, suggests the report. It adds that, apart from the prestige market, the inner city’s unit oversupply issues are behind it.
The long-awaited Inpex LNG plant is expected to boost rental demand for lower-end units, as workers flood into the city, but this demand will be tempered somewhat by the construction of a 3,000-man workers’ camp in Darwin’s rural residential areas, says the report.
“However the rental market is already tight and several other large industrial projects are planned for the next 12 months, putting further pressure on the city’s rental market,” it adds.
Katherine, too, warrants a mention in the report as a more affordable alternative for investors hoping to enter the Northern Territory market.
“Over the past few years, price growth in Katherine has remained steady with none of the peaks and troughs seen in Darwin, and gross yields are currently an attractive 6%. A budget of $500,000 would enable a purchaser to select from a variety of property types as the vast majority of local dwellings are priced below this level,” says the report.
It warns, however, that – while future growth could be generated by mining projects – Katherine is vulnerable to seasonal flooding.
“There hasn’t been a major flood for several years and the price gap between properties located inside the flood zone - and those located outside the flood-prone areas has narrowed over time. Should a major flood occur again, this gap may widen. Both investors and owner occupiers need to be mindful of the possible consequences of buying property in a flood liable area,” says the report.
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