Investors head for Sydney

Rental yields are starting to lift in Sydney's best suburbs. Most investors should now expect yields at almost 4%. In some cases I have been yields better than 4%; it's a very positive sign.

Underpinning this increase in yields is an upswing in demand for property. It's still not comparable to Perth – or more lately Melbourne – but it’s a lot better than this time last year.

In fact, the clearance rates in Sydney at the moment are the highest I’ve seen since 2003. They’ve been hovering around 67–69%. A year ago, in the worst situations, they were down to around 47%. Of course, Melbourne at the moment is having close to 80% clearance rates. That is exceptional; I think a healthy clearance rate is around about 60%.

Median house prices for the entire city of Sydney are still to show any significant change, but it's worth noting that an average block of land in Sydney now is $357,000. Adding a dwelling takes you up to about $600,000 for an average home.

Investors should remember these improved prices are based on figures collected in the better suburbs. The fact is that clearance rates don't matter in lower-income suburbs because generally they don't have auctions in those districts unless there are deceased estates.

Now if you look in a more restricted area, let's say the Lower North Shore: it was reported in the last 12 months to move 10%, so the blue ribbon areas in good solid areas will probably do double figures this calendar year.

The main issue in blue ribbon suburbs is supply. They’ve got a problem where they can’t actually find anything so the market gets locked. There's a of people in that area wanting to move up from the $1.5 range and $2 million range into the $3–4 million range but because they can’t find anything they’re holding on to their properties, which is then making that range extremely tight.

These are home owners and they are feeling more confident. They've seen a stabilisation in the budget, a budget stimulus, which has made people feel very confident.

I bought a two-bedroom unit in Neutral Bay yesterday for $555,000 and we ended up getting it on a 4.3% yield,

Now that property traded in 2003 for $547,000. So we bought that with a 4.3% return and we’re going to put the rent up even on that, it's already returning $465 a week. They're the sort of numbers investors like to see. It's unusual for Sydney, that's for sure.

Peter Kelaher is a director of PK Property Search & Negotiators, www.pkproperty.com.au, a Sydney-based buyer's agent.