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

Herald Sun - Property - - FRONT PAGE - PHOTO: DAVID CROSLING

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.”

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