Darwin, the top end in yields

PORTFOLIO POINT: Government, defence and resources companies’ presence is driving up the yields on Darwin property.

Rental yields on properties within 10 kilometres of Australia’s capitals remain on an uptrend. The growth that began during calendar 2008 has continued for the first half of this year, as rent increases outstripped prices.

But that trend could be reaching a plateau. Improving house prices during 2009 mean that peak rental conditions appear to be close in many areas, particularly in capital along the eastern seaboard.

Across capital city rental markets, Darwin remained the strongest performer, with houses now yielding 6.4% and units 6.1%.

At the other end of the scale, the softest yields are in Melbourne, at 4.2% for houses and 4.8% for units.

Across inner-city areas, Ultimo in Sydney has the strongest indicative gross rental yield at 10.4% for units. This is the result of affordable median prices (due to many one-bedroom units), coupled with a premium rental price stemming from Ultimo’s location and a very active student accommodation market.

Across the list of top five suburbs, units in Darwin and Sydney tended to have the strongest yields, with the top five in each city recording yields above 6.5%. Sydney’s strong rental demand is stemming from the expense of housing and the fact that the Sydney CBD is Australia’s largest employment node.

Meanwhile, Darwin properties are now more expensive than Melbourne and Brisbane. Darwin city has gone from strength to strength thanks to spending by government, the defence sector and mining and resources companies.

Inner-city house rental yields are strongest in Hobart, largely due to the relative affordability of housing in the city compared to mainland capitals. While the top indicative gross rental yields for units sits at 10.4%, the strongest inner-city house yields are 6.5% at Risdon Vale in Hobart.

The RP Data results show the weakest yields for inner-city houses are in Brisbane and Adelaide.

Throughout the country and across those suburbs within 10-kilometres of the city centres, the fact that most of these areas have a high median house price and are relatively expensive means that rental yields tend to be quite soft for inner-city houses.

Meanwhile, strong rental yields are much more apparent within the more affordable inner-city unit markets. This is simply due to higher demand for units in inner locations and a more affordable price compared to houses. This strong demand stems from proximity to working nodes, quality public transport amenity and a significant supply of restaurants, bars and most other amenity.

To clarify, the indicative gross rental yield is derived based on the ratio of the median prices to annualised median advertised rents. As a result, this measurement provides an indication of the suburbs where strong yields on investment property are available.

The past year has seen some exceptional improvements in gross rental yields throughout the capital cities,but most cities have now seen gross rental yields begin to plateau or even reduce slightly. Given this, the best buying conditions for investment won’t last much longer but for those who act quickly, there are still some good opportunities.

Cameron Kusher is senior analyst with RP Data.

nAustralia's best rental yields
City/Suburb	Dist from GPO	Median Price	Weekly Median Advertised Rent	Indicative Gross Rental Yield
Sydney Houses
Forest Lodge	4	$603,000	$670	5.8%
Darlington	4	$594,000	$650	5.7%
Waterloo	5	$537,500	$550	5.3%
Eastlakes	8	$657,500	$650	5.1%
Arncliffe	10	$542,500	$530	5.1%
Sydney Units
Ultimo	2	$235,000	$470	10.4%
The Rocks	0	$535,000	$1,000	9.7%
Woolloomooloo	2	$376,000	$630	8.7%
Rushcutters Bay	3	$335,000	$450	7.0%
Sydney	1	$472,500	$625	6.9%
Melbourne Houses
Collingwood	3	$555,500	$550	5.1%
Parkville	3	$785,000	$720	4.8%
South Kingsville	8	$492,500	$440	4.6%
Abbotsford	4	$577,000	$470	4.2%
Port Melbourne	4	$740,000	$600	4.2%
Melbourne Units
Carlton	2	$225,000	$370	8.6%
Burnley	5	$321,000	$500	8.1%
Melbourne	1	$367,883	$480	6.8%
Southbank	1	$460,000	$575	6.5%
Docklands	2	$522,500	$625	6.2%
Brisbane Houses
Hemmant	10	$392,500	$360	4.8%
Kenmore	10	$493,750	$450	4.7%
Spring Hill	1	$772,500	$695	4.7%
Tingalpa	10	$421,000	$375	4.6%
Keperra	10	$395,000	$350	4.6%
Brisbane Units
Spring Hill	1	$365,000	$450	6.4%
Fortitude Valley	2	$375,000	$440	6.1%
Tingalpa	10	$310,000	$360	6.0%
South Brisbane	1	$440,000	$500	5.9%
Woolloongabba	3	$400,000	$450	5.9%
Adelaide Houses
West Richmond	5	$343,555	$320	4.8%
Ridleyton	4	$400,000	$370	4.8%
Marleston	4	$408,000	$375	4.8%
Dernancourt	10	$351,500	$320	4.7%
Ottoway	10	$290,000	$263	4.7%
Adelaide Units
Gilles Plains	10	$258,750	$330	6.6%
Glenelg	10	$360,000	$450	6.5%
Woodville South	7	$262,000	$320	6.4%
Woodville North	8	$235,000	$260	5.8%
Everard Park	4	$227,400	$250	5.7%
Perth Houses
Tuart Hill	7	$425,000	$420	5.1%
Mirrabooka	10	$340,000	$330	5.0%
Redcliffe	8	$415,000	$390	4.9%
Ashfield	8	$385,000	$350	4.7%
Nollamara	8	$390,000	$340	4.5%
Perth Units
Glendalough	5	$250,000	$310	6.4%
Jolimont	5	$300,000	$350	6.1%
West Perth	2	$290,000	$330	5.9%
Stirling	9	$520,000	$580	5.8%
Perth	1	$269,500	$300	5.8%
Hobart Houses
Risdon Vale	9	$175,000	$220	6.5%
Mornington	6	$246,064	$300	6.3%
Rokeby	9	$183,500	$220	6.2%
Glenorchy	7	$230,000	$270	6.1%
Clarendon Vale	10	$159,500	$185	6.0%
Hobart Units
West Hobart	2	$255,000	$310	6.3%
Battery Point	1	$317,500	$360	5.9%
Moonah	5	$212,500	$240	5.9%
Glenorchy	7	$200,000	$220	5.7%
Lenah Valley	5	$230,000	$250	5.7%
Darwin Houses
Alawa	10	$419,000	$480	6.0%
Rapid Creek	10	$532,000	$600	5.9%
Bayview	3	$755,000	$850	5.9%
Woolner	3	$570,250	$630	5.7%
Wagaman	10	$400,000	$440	5.7%
Darwin Units
Stuart Park	2	$341,000	$450	6.9%
Alawa	10	$262,000	$345	6.8%
Parap	3	$290,000	$380	6.8%
Millner	8	$276,000	$360	6.8%
Wagaman	10	$250,000	$320	6.7%
Canberra Houses
Holder	9	$427,500	$475	5.8%
Duffy	10	$460,000	$508	5.7%
Bruce	5	$600,000	$660	5.7%
Evatt	10	$408,000	$440	5.6%
Mckellar	9	$492,500	$525	5.5%
Canberra Units
Scullin	10	$226,000	$310	7.1%
Hackett	5	$227,000	$280	6.4%
Lyneham	4	$338,000	$410	6.3%
Griffith	5	$340,000	$410	6.3%
Lyons	8	$242,500	$290	6.2%

Source: RP Data