Where to get solid capital growth and rental returns
Finding a property that achieves the investment double is a buyer’s nirvana, writes Jordan Marshall
WHEN looking to purchase an investment property, buyers often face the dilemma of rental yield versus capital growth. However, there are a number of Melbourne suburbs that sit in an investment sweet spot, where buyers can get both good rental returns and growth.
In the past 12 months, 99 Melbourne suburbs have returned both median house price growth and indicative rental yield at or above the citywide median, according to CoreLogic data. Fifty-two suburbs hit the same benchmarks for units.
REA Group chief economist Nerida Conisbee said finding an area that returned both strong rental yield and capital growth was the ideal situation for investors.
“Often these two things are exclusive,” Ms Conisbee said.
“Therefore areas that offer both solid rental and growth are something of an investment nirvana.”
For those looking at houses, Officer is the pick of the bunch.
The outer southeast suburb experienced median price growth of 25.9 per cent in the past 12 months, while providing investors with 5 per cent rental yield. Rental yield is calculated by dividing a suburb’s median rental income by its median sale price.
The Melbourne median house price growth was 8.6 per cent and the rental yield was 3.4 per cent.
For units, Sydenham led the way with the median price up 11 per cent and rental yield at 5.3 per cent.
At the same time, the price of the median Melbourne unit increased 2.5 per cent and delivered rental yield of 4.1 per cent.
“The fact it is the outer suburbs that are performing well in both areas is quite telling,” Ms Conisbee said.
“When you look on a national level regional property achieves the strongest yield, while the cities return the best growth. The data highlights that some of these outer areas are bridging the gap.”
However, WBP Property Group chairman Greville Pabst said buyers should be careful when looking at rental yields in the outer suburbs.
“Sometimes the yield in these areas is high because developers give a 12-month guarantee,” Mr Pabst said.
“Therefore once the 12 months ends you can see that yield drop right off.”
Mr Pabst said he would advise investors to forgo yield for growth and buy as close to CBD as their budget allowed. “Astute investors chase capital growth,” Mr Pabst said.
“Therefore buying close to the city is the best plan.”
Investors should consider where demand for rental properties was likely to be strongest, Mr Pabst said.
“My question about having a rental property in the outer suburbs is where does the rental demand come from,” he said.
“People want to live close to big cities, so that is where the renters will be.”