High Yield locations in Australia and where to find them
Below are my top three high yield location recommendations.
While these can change monthly, they have been and are currently performing and in my expert opinion, look like they will continue to perform well.
- Yield: up to 9% – 10% (units are currently attracting the best yields)
- Vacancy Rate: 1.9%
- Growth: Flat to negative
Source: RP Data, SQM Research
Cairns, the gateway to the Great Barrier Reef, should be back on investors’ radars following the announcement of the proposed $8.15 billion Aquis Great Barrier Reef Resort development in the northern end of the town.
Why invest: While the proposed Aquis resort development still requires some approvals before construction can begin, it’s already having an impact on the local market. The proposed 343ha development features eight hotels totalling 7500 rooms, two casinos, a golf course, shops, an aquarium, theatres and more.
According to plans, the first phase of construction will create 3,750 construction jobs and 11,000 operational jobs. The second stage will create 3,500 construction jobs and 9,000 operational roles. Its location is 13km north of Cairns, just outside Yorkeys Knob.
Top tip: While the suburbs closest to the proposed development have experienced a sudden surge in demand, the locations to look at now are those in the southern Cairns area where property is more affordable, while still benefitting from the project and producing decent yields. Suburbs such as Woree, where units are currently delivering 10% yield, have a number of schools and other local amenities, which add to the appeal. Once the Aquis project has final approval, the market is expected to take off in a big way and those seeking to maximise capital gains, as well as yield, will need to weigh up the risks and get in quick.
Risks: The obvious risk here is what will happen to the market in the event the Aquis project doesn’t receive final approval? Cairns has a robust tourism industry and purchasing in an area that is less reliant on the Aquis attraction as the main drawcard (such as those with schools) and with a large proportion of owner occupiers will help minimise any negative impact should the project not come to fruition.
- Yield: 8-10% (houses)
- Vacancy Rates: 6.1%
- Growth: -20% since 2011
Source: REIWA, SQM Research
Why invest: Despite having undergone a significant house price correction over the past two years, rental yields in Karratha have remained relatively strong, and well above the national average.
The drop in property prices is now providing investors with an ideal opportunity to access the market at the bottom of the current cycle ahead of expected upward swing as the population continues to grow and absorb current supply on the back of developing local & resource infrastructure projects over the coming 18 months..
Recent news that the development of Anketell Port is progressing through initial approvals should help further ignite the market and stimulate population growth once in full swing.
The WA government has unveiled a master plan for the multi-user, multi-commodity deepwater port which is to be located just 30km from Karratha. The plans would see Anketell have an eventual export capacity of more than 350 million tonnes a year. This would be more than double the total exports through the nearby Dampier Port and 20% larger than shipments at Port Hedland, placing it as Australia’s biggest export facility. The government estimates the project would create 4,000 construction jobs.
Major investment into civil infrastructure in Karratha is also underway to redevelop and revitalise the town and support the projected population increase.
Fundamentally, Karratha remains the service centre for Chevron’s Gorgon LNG project – Australia’s largest ever single resource natural gas project – and
Woodside’s Pluto LNG project – both which have lifespans of 40 years.
Top tip: Take advantage of the current low prices to maximise capital growth and secure a quality property that will appeal to the corporate leasing market.
Risks: Resource towns can experience higher volatility and relatively short market cycles, compared to capital cities. Investors should have a comprehensive strategy in place focused on investing for the medium to long term to ensure they’re financially prepared to withstand volatility periods.
- Yield: 9-12%
- Vacancy Rates: 3.7% and declining based on current trend
- Growth (1yr/3yrs/5yrs): -6.38%/16.79%/56.86%
Source: RP Data, SQM Research
Why invest: South Hedland is a major residential area forming part of the economic powerhouse that is Port Hedland. Port Hedland is now the largest bulk commodity port in Australia, used predominantly by iron ore giants BHP Billiton and Fortescue Metals Group. Both companies have invested billions over recent years to upgrade and expand port infrastructure to facilitate a ramp up of exports. The town’s next mega project – rail and port infrastructure for Gina Rinehart’s $10 billion Roy Hill iron ore project – is now underway.
Investment into civil infrastructure has also been significant in South Hedland. A new town centre, waterpark and sports stadium, among other projects, have all helped create a very desirable lifestyle and multiple commercial opportunities.
In just three years, Hedland’s economy has grown by more than 60% and the rapidly increasing workforce has resulted in a population surge. The town counts 20,000 residents today, rising around 30% in just five years.
Port activity remains strong with Roy Hill ramping up development of its rail and port infrastructure. Port expansions have also been flagged by both BHP and Roy Hill.
Top tip: The recent slump in house prices has provided good buying opportunities and has an opportunity to buy in low ahead of the next upswing. Whilst the town throughout the recent slowdown has continued to benefit from nation leading rental returns as high as 12% on large family homes.
Risks: Capital growth is likely to be slow in the short to medium term as the market moves through the current cycle. Investors should also take note of the current residential development pipeline which and avoid buying older properties in the town.
Invest Outside the Box to get ahead in 2013
It’s a tradition every January for real estate experts to give their predictions on the outlook of the Australian property market and pick hot spots for the coming year.
2013 is shaping up to be a very interesting year globally with all indications pointing towards the Australia property market during 2013 mirroring similar trends which occurred during 2012.
Property prices in most capital cities are expected to remain relatively subdued with marginal increases in rental returns, with the exception of Perth which is expected to benefit directly from the on-flow of growth from the WA resources sector in the second half of 2013.
In contrast, the standout performers for 2013 are expected to be the resource towns.
With property markets in major mining towns during 2013 remaining buoyant and investors achieving rental returns in excess of 10% PA in most locations.
The fundamental drivers that have underpinned the property markets in mining towns throughout Australia still remain the same in 2013 as they did in 2012 – Strong international demand for Australian resources, high ore prices, limited housing stock and a rising demand for accommodation, all contributing to strong trends in the Pilbara region of WA.
For property investors who have traditionally focused on investing in major capital cities, I challenge you to think and invest outside the box for 2013, as this year will be a game changer for the Australian resource industry and those investing in towns that benefit directly from it.
In particular, property investors should understand that the factors supporting the housing dynamics including rental returns and capital values in mining towns are long term trends with extremely positive futures both for the country and these regions in general.
Considering trends over the past 10 years, the median price of a house in Port Hedland, for example, has increased on average by 18.2% each year, twice the annual rate for Perth at 9.8%.
Interestingly taking a 15 year perspective, the annual median price of a home in Port Hedland has risen on average by 13% PA making it a high returning ‘blue chip’ investment using any independent criteria. In Karratha, property investors have achieved on average an 11.4% increase in the median prices per annum over the last 15 years.
The constant hype about boom/bust trends in mining towns should be placed into and considered with this long term perspective.
For those investors looking for the next hot pick and fast movers of 2013, there are specific mining towns in which real estate is currently undervalued and primed for future growth.
During the coming year, I believe the mining towns of Newman in Western Australian and Moranbah as well as Gladstone Queensland will be star performers for investors.
These three mining towns are set to benefit from continued new investment during the coming year, which is expected to place further pressure on the local supply of housing leading to an upward pressure on rents and capital growth.
Diversity is the key to any well balanced portfolio and helps to ensure that the investor is protected through both up and down markets. If your strategy has been focussed on negative or capital city properties, make 2013 the year you invest “outside the box” and add the strength of an income generating property to your portfolio.