Capital gains are the holy grail for many property investors. This makes sense, as according to BIS Oxford Economics Data, we’re in the midst of Australia’s largest ever housing upswing – property prices have increased a whopping 6,556 per cent since 1960.
Sustained growth has led investors to focus on price growth alone, often at the expense of a solid rental return. However, all signs suggest this meteoric growth may be flattening out in the near future, and investors should adjust their approaches accordingly.
Here are five areas where both capital gains and a strong rental return can be found.
Hobart and surrounding areas are some of the best performing areas in the country when it comes to rental returns.
Hobart was the property market to watch in 2017, and that trend looks likely to continue this year. A panel of 300 property experts – surveyed by NAB – have forecasted the city’s average house price will increase by 4.9 per cent over 2018 – more than any other capital city.
Hobart and surrounding suburbs are also some of the best performing areas in the country when it comes to rental returns. In fact, CoreLogic RP Data, singled out Hobart suburbs’ Chigwell, Warrane, and Glenorchy as the three top rental yield performers in the country in a recent report. Northern suburb Chigwell claimed the top spot, boasting an average gross rental yield of 7.4 per cent, and a 4.9 per cent increase in median rent over 2017.
If capital gains are your priority, Newcastle is a great place to look. According to CoreLogic data, during the year to August 2017, the median price of houses in the city grew by 12.4 per cent. Even units saw strong capital growth during that period, jumping in value by 9.1 per cent. The NAB Residential Property Survey has forecasted strong growth in Newcastle over 2018.
Capital gains usually come at the expense of solid rental yields but that’s not the case in Newcastle. Here the average yield for houses is 4.2 per cent, while units return 4.6 per cent on average. This return is decent, but paired with massive capital gains it makes Newcastle property an attractive opportunity.
Capital gains usually come at the expense of solid rental yields but that’s not the case in Newcastle.
In NSW, more than any other state, finding an investment property with both a solid rental yield and potential for capital gains is difficult. Property in wider Sydney, for example, has seen impressive price growth over the last five years, but has an average rental yield of under 3 per cent, according to SQM Research.
Toormina defies that completely. This small seaside town, on the coast halfway between Sydney and Brisbane, saw its median value increase by 22.1 per cent last year. Despite that impressive growth, the average dwelling value is roughly $300,000 and rental properties return an average of 6.1 per cent in rent per annum.
That rental return was no doubt boosted by the 10.1 per cent increase in median rents over 2017.
As prices and rents continue to climb in areas closer to the city centre, suburbs like Hampton Park will become more attractive.
Around 36 km southeast of Melbourne’s centre is Hampton Park, an emerging property investment hotspot. Unlike most Melbourne suburbs, Hampton Park is still affordable, with an average house value of $522,000 and an average unit value of only $378,000, according to Residex.
Those numbers are low despite value growth over the year to January 2018 of 21 per cent for houses, and 23 per cent for units.
Units in the suburb offer a particularly solid rental return, averaging at 5 per cent and above.
As prices and rents continue to climb in areas closer to the city centre, suburbs like Hampton Park will become more attractive to tenants and renters alike. This could help drive continued rent and price increases in the area, making it an excellent option for investors looking for good returns over the long term.
Collinsville is a small rural town, 308 kilometres south of Townsville. Census information puts its population at 3,496 and describes its main industries as agriculture, forestry and fishing (which bring in 21.9 per cent of the town’s GDP).
Because of its size and remote location buying property here is a risk for any investor, but when weighed against the possible reward that risk just might be one worth taking. Residex data shows the average house value here grew by a whopping 28 per cent over 2017, while rental yields sit at 9 per cent on average.
The average value of a home here is just $89,000, so investors of any level should be able to enter the market.
If you’re looking for your first, or next property investment, make sure you speak to a local real estate agent with plenty experience in the area before making any decisions. With the right insider advice, and by staying open to alternative locations, all property investors should be able to find both capital gains and solid rental yields.