Investors typically invest in cities to be able to grab a slice of the seemingly unending demand, but a new study found that regional areas actually have the highest average rental yield.

CoreLogic research said regional areas such as Cairns, Townsville, and the Hunter region have the highest average rental yields in Australia, while inner-Sydney suburbs have the lowest returns.

Other regional areas such as Granville, Harris Park, Merrylands West, Lakemba, Wiley Park, Fairfield, Campbelltown, Macquarie Fields, and Ingleburn also outperformed inner-city suburbs in terms of average rental return.

These regional suburbs have yields between 4.7% and 5.1%, significantly higher than Sydney's 3.8% for units and 3.2% for houses.

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The low rental yields in Sydney are mainly due to the city's skyrocketing dwelling prices and dwindling rents, said Simon Taylor, a buyer's agent. He said investors need to consider rental returns given the current investment-lending environment.

Furthermore, investors have not benefitted from the recent rate cuts and easing of serviceability of rules, leaving them still struggling to secure loans.

Taylor advised investors to look for properties in areas with high rental returns and low vacancy rates to increase their chances of getting approved for an investment loan. Rental yields and vacancy rates indicate the current state of demand in the area.

Regional locations, not just in Sydney but also in other states, are practical options for investors seeking higher rental returns, said James Nihill, a real estate adviser at Patrick Leo.

"Regional towns are often bolstered by major government infrastructure projects which strengthen their local economy, driving robust employment and population growth," he told The Daily Telegraph.

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