Australia's rental hotspots

PORTFOLIO POINT: With rental growth expected to be the biggest feature of the market this year, here are the suburbs with the fastest growing rental rates.

Property values aren’t expected to jump considerably this year but rental rates are likely to experience good growth, which is sure to be music to the ears of investors.

Investors should be looking for both capital growth and rental growth when they buy a property. “You don’t necessarily have to buy a property that’s going to pay for itself straight away but you want something that within a few years of rental growth will start to pay for itself,” says property watcher Terry Ryder.

Research by the Australian Housing and Urban Research Institute has found that one-in-four property investments are sold within 12 months, and negatively geared property investors are among those more likely to make an early exit from the market due to financial difficulty.

This article identifies the top locations for rental growth for both houses and units, measured by changes in median advertised rents based on data from Australian Property Monitors (APM). Suburbs with less than 40 rental listings were excluded from the list.

APM senior economist Andrew Wilson points out there wasn’t a great deal of pressure on the rental market last year due to high first-home buyer activity in late 2009 and early 2010, which took a lot of renters out of the market. There was also a general retraction of consumer confidence, which kept rents from rising significantly.

Nationally, house rentals rose by 3% over 2010 and unit rentals rose by 3.2%, according to APM figures.

For houses, Darwin had the greatest growth in rents, up 10%. It was followed by Hobart (6.7%), Canberra (4.5%), Sydney (4.3%), Perth (4.2%), Adelaide (3.1%), Brisbane (2.8%) and Melbourne (1.4%).

Darwin also recorded the worst growth for units, with a 14% drop in rental rates.

Canberra recorded the greatest growth for unit rentals, with a 5% increase over 2010. Perth and Hobart recorded no increase for unit rentals, while Sydney rents grew by 4.8%, Adelaide recorded a 3.8% increase, Brisbane rents rose by 2.9% and Melbourne recorded rental growth of 1.5%.

Of all the states, New South Wales stood out from the crowd in the list of the top locations for rental growth during 2010, with the state accounting for more than half of the suburbs.

Below are the top 20 suburbs for houses ranked by rental growth in 2010.

1. Lithgow, NSW (38.6%)

Employment and proximity to Sydney are the two factors driving rental growth in Lithgow, according to Jamie Giokaris of LJ Hooker Lithgow.

There are a lot of jobs in the area, he says, with coal mines, power stations and government departments being some of the major employers.

Giokaris notes that Sydney rents have skyrocketed in the past couple of years and some people have moved to Lithgow, north-west of the city, to find something more affordable.

2. Cape Woolamai, Victoria (35.2%)

The main reason Cape Woolamai and Cowes (number 10), both on Victoria’s Phillip Island, have made the top suburbs list is the desalination plant being built near Wonthaggi in Victoria’s south. Incidentally, it’s also the reason Wonthaggi has rated number 18 on the list for rental growth.

Mike Foenander of Judith Wright Real Estate Phillip Island says there are thousands of workers on the project and Cape Woolamai, situated closer to Wonthaggi, just comes within the geographical boundary of where they need to be housed.

That’s what’s driving up rents in the area, he says, and it’s also been the catalyst for many holiday homes to be converted to permanent rentals.

3. Sadadeen, NT (33.6%)

Situated in the Northern Territory’s second-largest town of Alice Springs, Sadadeen is one of two suburbs in the territory to make the top 20 rental growth list, along with East Side (number 14).

Valuer Terry Roth of Herron Todd White says Alice Springs has had a critical land shortage for the last 15 years, which is driving rents.

While supply of housing is low, Roth adds that demand has increased since the Federal Government’s 'intervention’ in Aboriginal communities, which has created employment in the area.

4. Balgowlah Heights, NSW (31.7%)

Located in Sydney’s northern beaches district, Balgowlah Heights “ticks all the boxes”, says Robert Klaric of Klaric Partners.

It offers a very cosmopolitan lifestyle, he says, with shops, a park, restaurants and cafés. It’s also positioned well geographically, being close to beaches, as well as the city, which can easily be accessed either via the Spit Bridge or Manly Wharf on the ferry.

As well as being a lifestyle choice, Klaric points out that Balgowlah Heights is attractive from a price point of view, because it’s cheaper than Mosman, situated adjacent to it but closer to the city on the other side of the Spit Bridge.

5. East Perth, WA (28.9%)

East Perth is at the doorstep of the Perth CBD but doesn’t have the traffic and parking hassle and, with easy freeway access, train and the free bus service that operates around the CBD, it’s accessible, points out Momentum Wealth managing director Damian Collins.

“East Perth was historically an industrial area but has had a major rejuvenation over the last 10 to 15 years, with many new developments including mixed-use commercial properties that house boutique businesses and a trendy bar and café precinct,” he says.

“Plus there are executive luxury homes, townhouses and apartments with parkland, city and river views.”

6. Manly Vale, NSW (26.1%)

Manly Vale is a bit cheaper than fellow top 20 suburb Balgowlah Heights, both of which are in Sydney’s sought after northern beaches region.

While there’s usually high demand for units in the suburb, John Cunningham of Cunninghams Property notes that more recently the demand for houses to rent has increased significantly.

He says people have sold their houses and are renting in the interim before they buy another house, and demand is also due to the suburb’s affordability – it’s considered to be a “good value” suburb in the northern beaches.

7. Rostrevor, SA (25%)

There are many drawcards for the inner Adelaide suburb of Rostrevor, just nine radial kilometres northeast of the CBD.

It’s close to several sought after schools, which is proving to be a major factor in the demand from tenants; the shopping centre has had a revamp; and it has big blocks that allow for redevelopment, says Gary Musolino of Elders Real Estate, Athelstone.

He points out that you can buy a property with a rundown house on it but still rent it out – with huge rental demand in the area – and then develop at a later date.

8. Elermore Vale, NSW (24.1%)

The Newcastle suburb of Elermore Vale makes the top 20 list for rental growth in houses.

More people are moving from Sydney to Newcastle, the second most populated city in New South Wales, due to affordability, and with more demand in the area generally rents are being pushed up.

Elermore Vale is close to the John Hunter Hospital and the University of Newcastle, notes Robert Crawford of Robert Crawford Real Estate, which creates tenant demand in the suburb.

9. Waverley, NSW (23.8%)

The demand for rental properties in Waverley has definitely increased, along with demand in its neighbouring suburb of Clovelly, also on the top 20 list for houses, according to Mark McPherson of N G Farah Real Estate in Coogee.

Situated in Sydney’s eastern suburbs, they’ve got a desirable lifestyle, he notes, with the city only around five kilometres away, the facilities in Bondi Junction virtually next door, and the beach only five minutes away.

“The demand is there for rentals to go even higher,” he says.

10. Cowes, Victoria, VIC (22.7%)

Cowes is almost the capital of Phillip Island, says Philip Bock of First National Real Estate Phillip Island, because it’s the suburb that has the majority of services and amenities.

Construction of the desalination plant near Wonthaggi has brought workers into Phillip Island, and many executives have chosen to stay in Cowes.

Traditionally Phillip Island has been a holiday area, with lots of holiday rentals; its famous penguins, and hosts several Australian motor racing events. During peak weeks there are good premiums for rental properties in the area.

11. Hayborough, SA (22.5%)

It’s the lifestyle of Hayborough – and its home city of Victor Harbour – that’s the big drawcard for the suburb, according to Professionals Victor Harbour director Emily Smith.

Victor Harbour is around 70 kilometres south of Adelaide and, being by the seaside, it attracts lots of holidaymakers and there are plenty of short-term rentals. But people increasingly are moving to the area as permanent residents and commuting for work, says Smith, and that’s one of the factors pushing along the permanent rental market and driving up rents.

12. Roma, Queensland (21.5%)

There’s a shortage of supply in the Roma residential property market and coupled with high demand, particularly from workers in the oil and gas industries, there’s been a steady rise in rents, according to Digby Makim of Herron Todd White.

Some development of housing is under way though, he notes, which means down the track there could be a situation where rents level out.

Situated more than 400 kilometres west of Brisbane, Roma is an agricultural area in the Darling Downs area of Queensland, but it’s known for being the 'cradle’ of Australia’s oil and gas industry.

13. Blairgowrie, Victoria (21.4%)

Lindsay Davidson of Briggs Shaw Real Estate believes the rental growth rate for Blairgowrie could be a little skewed due to the vast range of properties that are rented in the area and the limited number of properties that were leased – 67.

“Some properties are worth $400,000, then some are worth $4 million, so if you lease more of the expensive properties it can heavily affect the growth percentage,” he says.

Davidson describes Blairgowrie, situated on Port Phillip Bay, as an “exclusive” and “desirable” area, where many people buy non-essential real estate to have as holiday homes. But he notes that more people are moving to the area and commuting to work in Melbourne.

14. East Side, NT (21.1%)

It’s probably the “best part of Alice”, says Herron Todd White’s Terry Roth, of the suburb of East Side in Alice Springs.

“It’s the preferred suburban area of Alice from the CBD,” he says, adding that it has established houses on big blocks.

David Forrest of Framptons First National notes that rents in Alice Springs have been rising across the board due to a shortage of dwellings, a consequence of a lack of new land being released for development and employment being created in the government sector.

15. Clovelly, NSW (20.8%)

The beachside suburb of Clovelly and its surrounding suburbs in eastern Sydney are growing, according to Michael Conolly of McGrath Estate Agents.

Over the years the area has changed, he says, particularly in terms of lifestyle; it started at Bondi, then went to Tamarama, Bronte and of course, Clovelly.

Clovelly is starting to fall into the 'elite’ suburb category, says Conolly. He points out its beaches, parks, good lifestyle and café culture.

16. Claremont, WA (20%)

Claremont, within a 10-kilometre radius of the Perth CBD and in the city’s prestigious 'western suburbs’ precinct, has made the top 20 rental growth list for houses.

Much of the rental growth in Claremont can be attributed to an increase in the number of executive rental properties. Many such developments came on-stream in 2010, says David McKenzie of Olifents Real Estate, and were snapped up by investors and rented out to the executive market, particularly to those in the mining industry.

17. Bellevue Hill, NSW (19.7%)

Bellevue Hill makes the top 20 list for houses in Sydney’s eastern suburbs.

It’s in a good location and it’s an attractive area to live in, given its proximity to the city, Double Bay, its elevated position, and the abundance of good schools nearby, says Brad Caldwell-Eyles of 1^st City-Hasemer Caldwell-Eyles.

He notes that post global financial crisis some house owners in Bellevue Hill have turned their homes into investments and rented them out so they can afford to keep them.

18. Wonthaggi, Victoria (19.6%)

A water desalination plant being built on the Bass Coast near Wonthaggi in southern Victoria is the major factor driving up rents in the town.

The Victorian Desalination Project is scheduled for completion at the end of this year, which raises questions about what will happen to the rental market when the thousands of workers leave town.

19. Bargo, NSW (18.6%)

Good freeway access is one of the main drawcards for the small town of Bargo, according to Daniel Carpenter of Carpenter Partners Real Estate.

Outside of peak times it can take around an hour to travel to the Sydney CBD after getting on to the Hume Highway and, while in peak times it could be double that, people still choose to live in the area and commute to the city, he says. It’s also possible to get the train into the city.

20. Glenhaven, NSW (18.6%)

Glenhaven has always been one of the more popular residential suburbs in the Hills District, says Ben Jobberns of Guardian Realty.

The suburb, around 30 kilometres northwest of the Sydney CBD, is predominantly residential but there’s a smattering of acreage, he says.

This is an edited version of API’s analysis of the top 50 Australian suburbs for housing and unit rental growth. Lists of the top 50 houses and units are provided in the attached tables.

• Houses, top 50 suburbs, click here.

• Units, top 50 suburbs, click here.