The number one suburb to invest in for rental performance is Chigwell in Tasmania, according to CoreLogic’s latest Top Rental Performers report. Houses in Chigwell have a rental yield of 7.4% and a median value of $226,065, which also makes it the most affordable suburb.
CoreLogic’s Top Rental Performers report replaces the former Residex Best Rent report, and uses upgraded methodologies, data, and analytics from Australia’s largest property analytics company. The report also identifies suburbs across the country where rental yields are higher than 5% per annum, together with a range of other criteria that makes these suburbs a lower-risk investment based on historical data.
“These areas have been identified as making the grade as ‘best rents’ because they demonstrated solid rental yields, consistent rental growth and vacancy rates of less than 3%,” said Tim Lawless, research director at CoreLogic. “They have also performed consistently from a capital growth perspective.”
With investment properties still making up a significant proportion of the housing market, the Top Rental Performers report features 34 suburbs where houses offer good rental opportunities and 24 suburbs where units offer the best rental value, while simultaneously demonstrating capital growth.
“With housing affordability a key issue in the Australian housing market, and strong market growth dominant across the eastern states, most of these suburbs are found in regional and coastal markets as well as satellite cities,” Lawless said.
Listed here are the top five suburbs to invest in for rental performance:
1. Chigwell, TAS – Houses – 7.4%.
8 year average growth: 1.37%
2. Tweed Heads West, NSW – Units – 6.9%
8 year average growth: 0.7%
3. Warrane, TAS – Houses – 6.6%
8 year average growth: 0.55%
4. South Lismore, NSW – Houses – 6.5%
8 year average growth: 1.54%
5. Brighton, TAS – Houses – 6.5%
8 year average growth: 1.65%
While these suburbs demonstrate clear potential, it’s important to look at their combined return, according to Rich Harvey, managing director of buyer’s agency Propertybuyer.
“These suburbs do not perform well when compared to blue chip areas,” he said. “In addition, there are substantial benefits to generating wealth through capital gains as the tax is postponed until the property is sold (which may not occur in the investor’s lifetime) rather than being paid at the investor’s marginal rate (assuming the property is or becomes positively geared at some point). Also, investors can use the equity generated over time to leverage and buy further investments, which is not possible with high yield/low capital growth properties.”
Pros and cons of investing in Hobart real estate
While other analysts have singled out Hobart as the next major Australian city to experience significant price growth, and have highlighted the city’s record-breaking tight vacancy rate, Harvey cautions investors to consider the city’s long-term growth prospects.
“Hobart is enjoying strong price growth for a short-time period as investors take flight in search of yield,” he said. “The ripple effect is traveling over bass straight to the apple isle from the major capitals. Price growth has already taken off in Hobart so you’d need to weigh up carefully how much petrol you think is still in the tank.”
“When considering whether to invest in Hobart or anywhere else, the same investment rules apply: Do your research at both a macro and micro level. Look for the fundamental drivers of growth that stem from population growth, infrastructure and employment growth and see if these drivers will lead to greater pressure on housing demand and hence prices. I think Hobart’s good run will slow soon.”
Harvey also advises investors to consider the risks. “Another factor to consider is that house and unit prices in Hobart are so low in comparison to the major capitals of Sydney and Melbourne that investors can be lulled into a false sense of security thinking that the price differential must mean capital growth is imminent,” he said.
“While tourism is a buoyant and driving factor for employment for Hobart, it will need a host of other drivers to see prices rally continuously for a sustained run,” Harvey said. “Be careful when buying interstate and consider using a REBAA accredited buyer’s agent that follows a strict code of ethics.”
“They can do the on-the-ground research for you and save you a stack of time and effort. Also interview and engage a good property manager for remote management – they are the ones that need to care for your asset.”
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