Where to find Australia’s best High Yield capital city suburbs
Last week I looked at three regional towns currently delivering strong rental yields with good prospects for future capital growth. This week’s blog highlights three capital city areas with promising investment profiles for strong rental return and capital growth prospects.
Units, over houses, are generally performing better across the board in capital cites.
Brisbane – City
· Yield: up to 7% (units)
· Vacancy Rate: 4.5%
· Growth (1yr/3yrs/5yrs): 0.11%/3.33%/1.09% (units)
Sources: RP Data, SQM Research
Why Invest: The Brisbane market has now entered its next growth phase after a period of decline. Investors have the opportunity to buy-in at very affordable prices, considerably less (up to 45%) than the Sydney and Brisbane medians for quality inner city units.
Brisbane has been undergoing transformation in recent years and along with fantastic weather now counts world-class culture, entertainment and dining options among its draw cards. It’s also investing heavily into infrastructure with $132 billion of projects planned between 2010 and 2014, with a significant focus on improving transport.
Queensland is also one of Australia’s most resources-rich states with a massive LNG export industry that’s only in its early phases of development, further strengthening the state’s industry with significant flow-on effects to Brisbane.
Top tip: Investor demand is most definitely on the rise in Brisbane – apartment sales in 2013 almost doubled that of 2012. Get in now and make the most of the current affordability and opportunity to maximise growth. Look for boutique apartments with unique features.
Risks: Apartment oversupply is an issue in Brisbane, as it is with many Australian capital cities. This could result in slow rental and capital growth, and high vacancy rates in the short to medium term until supply is absorbed.
Sydney – Western Suburbs (e.g. Whalan, Mt Druitt, Lethbridge Park)
· Yield: 6-7%
· Vacancy Rate: 0.7%
· Growth (1yr/3yrs/5yrs): 15%/35%/34% (Averages)
Sources: RP Data, SQM Research
Why invest: Sydney’s market has boomed in recent years prompting investors to look outside the usual inner city areas – which have reached unaffordable heights – to suburbs where they can secure decent sized blocks for renovation or development and where the low buy-in can facilitate good yields.
While not considered highly desirable locations to live in the past, suburbs such as Whalan, Mt Druitt and Lethbridge Park, which all fall within the local government area of Blacktown, have emerged as areas worth further investigation for these very reasons. Despite the LGA’s rapid population growth – a 25% increase over the last 10 years – median property prices range from just $270,000 for a unit to $410,000 for a house across Whalan, Mt Druitt and Lethbridge Park.
They might be 40km from Sydney’s CBD, but transport connections are excellent which is one of the area’s most desirable features. There are direct rail lines to central station and close access to major motorways. Vacancy rates are extremely low at 0.7% and the area is very popular with families.
Top Tip: These outer suburbs are ripe for renovation projects and larger blocks mean the addition of granny flats to increase income are also worth considering.
Risks: Sydney’s capital growth over recent years has been huge and is now slowing. A ‘crash’ is unlikely but investors should be aware that growth will more than likely to be slower than recent years and this is cash flow investment rather than a capital growth investment.
Perth – City of Bayswater
· Yield: Around 5-6% for units
· Vacancy Rate: 1.9%
· Average Annual Growth: 10% (houses and units)
Sources: RP Data, SQM Research
Why invest: It has been reported that slower growth, sales and rising vacancy rates suggest that Perth’s booming property market is softening and maybe reaching – or have already reached – its peak. However, this doesn’t mean good yields can’t be found in certain pockets within the city.
Bayswater council – which includes the suburbs of Bayswater, Maylands, Morley and others – has plenty of highlights. It’s just 7km from the CBD, the Swan river is on its door step, there are excellent bus and rail connections and a lively cultural and entertainment precinct in neighbouring suburb, Mount Lawley.
Top tip: Morley looks to be one of the most interesting of the suburbs within Bayswater due to its recent and future development. Despite not having its own train station, unlike some of the other Bayswater suburbs, it has superb bus infrastructure – the CBD is only around 15 minutes by bus. Major roads are also easily accessible and the light industrial area in Ashfield, under development, is within a couple of kilometres.
In 2011, the $60 million Coventry Square, Perth’s biggest markets complex, opened in Morley, creating a major tourist and entertainment destination.
A masterplan for the further development of the Morley city centre has also been approved. The plans include a new central park, improving public transport, upgrading streetscapes and public spaces, and making streets more pedestrian friendly.
Risks: The Bayswater area has experienced good capital growth in recent years and could slow based on the broader market indications for Perth.
House and land packages – a strong start to investing
Over the past few years house and land packages have become increasingly popular with investors as a way to enter the property market.
House and land packages offer a number of distinct advantages when compared to buying an established home.
Firstly, they tend to be competitively priced and offer a lower cost entry into the property market. In addition to this entry advantage, investors can avoid paying stamp duty in certain states. This can be a saving of thousands of dollars when compared with the potential stamp duty payable when buying an established home.
The purchase of a house and land package also benefits the investor by offering a wide range of configuration choices, ideal if they are targeting the corporate leasing sector. For example, investors can add additional ensuites to the plan of the home which will appeal to renters and significantly boost the rental returns of the property.
In a rising property market, there is also the opportunity to lock in construction and land prices by using a fixed price contract and end up with a property worth significantly more than what it was purchased for. During the period elapsed from the contract being signed to completion and handover of the property, any increase in the value is to the benefit of the buyer, not the seller. In rising markets it is not unusual to see properties settling with instant equity, which the investor can borrow against to assist in future purchases.
The main advantage of a house and land package is that the property is brand new and comes complete with builders warranty and low maintenance costs. Buying older properties can eat into any cash reserves available, as maintaining older homes can be quite expensive and they are less appealing to higher end corporate tenants. A new home also offers attractive tax depreciation benefits that can significantly boost the properties return come tax time.
House & Land packages can serve as the ideal first investment to the cash-flow positive investor offering; increased rental return, lower maintenance costs, depreciation and the potential to capitalise on rising markets whilst protected by fixed price contract.
Crawford Property Group is currently offering a number of House & Land packages in Positive Property Hotspots.