REVEALED: The best markets for investors looking to rent out homes - and our biggest cities are falling well behind
- Rental yields for property investors is the highest in Hobart - at 5.13%
- Yields increased in all capital cities except Brisbane - which dropped to 4.6%
- Rent in Sydney remains the most expensive - at a median of $540 weekly
- Hobart is now more expensive to rent in that Melbourne - at a median of $450
Property investors in most cities have seen an improvement in rental yields over the first quarter of 2019, but the best returns are increasingly likely to be found away from the major population hubs of Sydney and Melbourne.
Rental yield - the percentage of property's value that can be charged in rent - improved more in Melbourne than Sydney over the opening three months of the year, meaning the two cities are lineball at 3.3 per cent.
Both those cities have seen significant improvement in year-on-year terms, principally because of a significant drop in the average value of properties.
The biggest improvement in yields in the early part of 2019 was to be found in Hobart, which edged up to 5.13 percent.
Even though median weekly rent for Sydney is $540 and Hobart's sits at $450, it's the latter that gives a higher yield for investors due to the relatively low price of homes.
Rental yields grew in early 2019 across all capital cities except for Brisbane - which saw a small reduction to sit at 4.6 percent, according to data from the latest Domain Rental Report.
Apartments in Canberra, with a yield of 6.14 per cent, offered the best return over the March quarter - but for houses it was Hobart that came in first with yields at 5.13%
Housing investors in Hobart are reaping the benefits of not only the highest yield, but also for the significant capital growth, according to Domain senior research analyst Nicola Powell.
Hobart has the lowest vacancy rate of all the capital cities at 0.3 per cent - which pushes up rental prices as demand grows, and rent prices are rising quicker than house prices.
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This actually makes the relatively small capital of Hobart more expensive for renters than Melbourne.
Median weekly rent for a house in Tasmania's capital city is $450, compared to Melbourne's $440, according to the Domain Rental report for the March quarter.
Over the March quarter, apartments in Canberra were best off - with a rental yield of 6.14 per cent.
Canberra experienced a development boom which pushed unit prices down.
| Capital city | March 2019 | December 2018 | Quarter on Quarter | Year on Year | |
|---|---|---|---|---|---|
| Sydney | 3.32% | 3.29% | 0.7% | 5.3% | |
| Melbourne | 3.30% | 3.25% | 1.4% | 7.5% | |
| Brisbane | 4.61% | 4.62% | -0.2% | 0.2% | |
| Adelaide | 4.48% | 4.43% | 1.2% | 0.1% | |
| Perth | 4.42% | 4.34% | 2.0% | 6.0% | |
| Canberra | 4.39% | 4.33% | 1.4% | 2.3% | |
| Darwin | 4.76% | 4.68% | 1.8% | -4.2% | |
| Hobart | 5.13% | 5.05% | 1.6% | 2.4% |
But much of the apartment stock had been aimed at owner-occupiers - resulting in a shortage of rentals which pushes rent up, Dr Powell said.
On a year-to-year basis, Melbourne's improvements in rental yield have been the biggest, jumping by 7.5 per cent.
'When you look at the markets that have seen the most significant improvements… it's the cities that have seen the strongest price declines,' Dr Powell said. 'We're seeing prices fall at a faster pace than rents.'
| Capital City | March 2019 | December 2018 | Quarter on Quarter | Year on Year | |
|---|---|---|---|---|---|
| Sydney | 3.97% | 3.91% | 1.4% | 2.7% | |
| Melbourne | 4.58% | 4.41% | 3.8% | 3.3% | |
| Brisbane | 5.23% | 5.08% | 3.0% | 3.3% | |
| Adelaide | 5.32% | 5.20% | 2.2% | 3.5% | |
| Perth | 4.93% | 4.83% | 2.0% | 8.5% | |
| Canberra | 6.14% | 6.03% | 1.9% | 4.6% | |
| Darwin | 6.07% | 6.04% | 0.5% | 0.5% | |
| Hobart | 5.17% | 4.95% | 4.3% | -0.7% |
Data source: Domain
Yields are the lowest in Sydney and Melbourne while sale prices fall, prompting more investors to look elsewhere, said Rich Harvey, chief executive of propertybuyer.com.au.
'You would only ever consider going to that low a yield if you knew there was going to be a strong capital gain,' Mr Harvey said. 'We're seeing a lot of investors [now] interested in regional areas or Brisbane and placing a lot of our investors in the Newcastle market.'
He warns investors should not only focus on yields, but also on potential population growth, infrastructure projects and employment opportunities - which all drive property prices upward.
