This is not a trick question. If you’re looking to make a fortune this year, your best bet would be to seek out opportunities in these two markets, according to CoreLogic RP Data.
Tim Lawless, head of research, said that based on their analysis, these two cities offer some of the best capital growth potential in the whole country.
Granted, they’re in the opposite ends of the spectrum, but both are showing strong growth momentum that is likely to continue in the next 12 months.
“Sydney is the market to watch for the most capital growth in the coming year,” said Lawless. “It’s the most expensive market to buy into but it’s still going strong.”
During the past 12 months ending January, median dwelling price for Sydney surged a staggering 13%, giving investors a total return of 17.5% on their investments.
This strong growth also means that the median house price in Sydney is now an eye-watering $850,000 while median unit price now stands at $605,000, according to CoreLogic RP Data.
On the other hand, Hobart’s robust growth of 4.4% over the three months ending January is nothing short of impressive. In fact, it totally eclipsed Sydney’s 2.4% growth over the same period.
While it’s coming off a low base, the trend is clearly showing an upswing, according to Lawless.
“Hobart, being a smaller market is subject to volatile performance, but if you isolate all that noise, the trend is clearly an improving outlook. We’ve seen a stellar performance over the past 12 months through the last six months. The past three months saw a 4% growth so as you can see that the trend is certainly an improving market. I think growth is returning in Hobart.”
Lawless added that despite the solid growth in prices during the past year, prices in Hobart and Tasmania as a whole are still lower than in 2009, so you’re buying low.
“It’s starting to attract lifestyle buyers and retirees back into the state. For investors, the big attraction is the return on investment. Yield is a healthy 5.2% for houses which is the second highest in the country behind Darwin
. For this you’re getting a total return of 8.6% on your investment,” he said.
But there’s always a but…
Sydney’s main risk is its poor affordability. While property prices are set to grow solidly over the next 12 months, the astronomical price points are pricing out many potential buyers, especially first home buyers.
The current discussion on tighter lending criteria for investors are also likely to curb some of the demand.
On the other hand, Hobart’s affordability may play well into value seeking investors, and growth is looking more and more entrenched, however, there are still some risks in the overall Tasmanian market, according to Lawless.
The bottom line?
It depends on your budget and your tolerance to risk. Sydney is less risky in a way that the economy is strong and demand can only continue to grow. But the prohibitively high prices could potentially put a strain on your cash flow.
Hobart may be cheaper, but the economy is not as robust as Sydney and it’s a small and volatile market. If you can tolerate this risk, then you’d be getting at least two properties for the price of one unit in Sydney.
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