When purchasing an investment property, buyers often categorise properties as a ‘capital growth’ or ‘high-yielding’ asset.
When purchasing an investment property, buyers often categorise properties as a ‘capital growth’ or ‘high-yielding’ asset. The assumption is that the properties and suburbs that are likely to see the strongest capital growth are also likely to see lower yields, and vice versa.
Looking at current rental yields against the past 10 years’ price growth, shows this relationship is to broadly hold across Australia’s regions. Those regions that have seen the highest average annual price growth have also tended to have the lowest average rental yields.
While the data shows an overall negative relationship between rental yield and price growth, it also shows that some regions have bucked this trend, allowing investors to get the best of both worlds; achieving a strong capital growth while, at the same time, generating strong rental yields.
Looking at the data, a few trends emerge. Houses typically provide lower yields than units, but higher capital growth.
By state, regions in New South Wales and Victoria have tended to see the strongest average annual growth in median price over the past 10 years. Correspondingly, they are also home to Australia’s lowest yielding regions and suburbs. For those investors chasing the highest yields, however, Tasmania and Queensland came out on top.
So where are the suburbs where investors have achieved both? To identify these areas, a high yielding suburb has been defined as one in which the average gross rental yield is in the top 25% nationally, calculated for houses and units respectively.
For houses, Crace in Canberra saw the highest annual price growth over the past 10 years among high yielding suburbs at 9.8%. Regional areas were the standout, with nine of the top 10 high yielding capital growth suburbs outside greater capital city regions.
New South Wales and Victoria accounted for eight of the top ten nationally. Standout regional areas were Illawarra in New South Wales, home to the suburbs Berkeley (6.9% growth) and Warilla (6.8%), and Hume in Victoria, home to Euroa (8.9%), Myrtleford (8.0%) and Rutherglen (6.9%).
In the unit market, Bellara (11.3%) in Queensland’s Moreton Bay region, saw the strongest price growth among high yielding suburbs over the past 10 years.
As with houses, it was high yielding suburbs in regional areas which saw the strongest growth in unit prices over the past decade. Regional New South Wales was the star performer, with eight of the top 10 high yielding capital growth suburbs located there.
Originally published on realestate.com.au under ‘Suburbs where investors have achieved high yields and capital growth’