Treasure map: identifying Australia's top unit markets

Investors looking for lucrative opportunities in the Australian property market often find themselves at a crossroads of choice and due diligence.

Taking an analytical deep dive into the unit markets, the top 78 suburbs that stand out in terms of yields, rental affordability, socioeconomics, vacancy rates, and growth metrics have been identified.

This comprehensive analysis serves as a beacon for investors to navigate the dynamic landscape of Australia’s unit markets.

The pursuit of yield

In any investment, the yield is a cornerstone metric that signifies the annual return on investment. The unit markets highlighted in this report promise a rental yield that is not only above the national average but also exceeds the 4.5 per cent benchmark, providing compelling cash flow for investors.

Edge Hill in northern Queensland, with a yield of 7.32 per cent, exemplifies the kind of high-yield unit market that can offer investors robust returns.

Rental affordability: a tenant’s budget

An integral aspect of a sustainable investment is the rent-to-income ratio, which ensures that rental prices are in harmony with local incomes.

Our interactive mapped list centres on units where this ratio maintains a delicate balance, thus underlining the affordability for tenants and the investment’s appeal.

With ratios averaging around 24.6 per cent, the selected suburbs stand as epitomes of this balance, ensuring that the location is accessible and attractive.

The vacancy rate: a market’s pulse

Vacancy rates are often the market’s pulse, reflecting the ebb and flow of demand and supply.

With an average vacancy rate of 0.93 per cent among the selected unit markets, investors can take confidence in a healthy level of demand that is neither tepid nor overheated—a crucial indicator for long-term rental stability.

Growth trajectories: the path to prosperity

No investment narrative is complete without a discussion on growth. The unit markets in question have demonstrated encouraging growth trends.

Short-term rental price growth averages at 4.5 per cent over three months, and the capital growth rates underscore the potential for substantial appreciation, marking these suburbs as territories ripe for investment.

Interactive map: 78 top unit markets analysed

Zoom in on your city of choice to reveal the three top investment suburbs, and drag to and click on the location blob for an array of data on each unit investment hotspot selection.

(Note on measurements: The Buyer Index is an indicator of inventory levels rated from 1 to 10, with a score of 3 or below suggesting strong competition among buyers; the Advantage Disadvantage Decile rates the socioeconomic standing of a suburb, with 1 being the most disadvantaged and 10 having the great advantage).

High-rental tenure suburbs: a note of prudence

While the report highlights high-rental tenure suburbs for their active markets, it also cautions investors. Suburbs such as Harris Park, Sydney, and Milton, Brisbane, with their significant rental populations, can experience market fluctuations. Investors are advised to engage with these markets with an informed strategy and a buffer for potential volatility.

The culmination of high yields, balanced rent-to-income ratios, favourable socio-economic standings, stable vacancy rates, and promising growth forecasts constructs an attractive narrative for investing in the unit markets of these 78 suburbs.

This wealth of data provides investors with a compass to navigate the intricacies of the Australian unit market landscape, directing them towards opportunities that promise both immediate returns and long-term capital growth.

Fastest growing regional unit markets

Demand for more affordable homes following substantial interest rate rises has provided support for regional unit markets.

Unit values in southeast Queensland have performed particularly well, according to PropTrack, alongside commutable NSW regions, likely reflecting affordability constraints. Many jobs have remained flexible and capital city housing is much less affordable relative to regional counterparts.

Affordability advantages and population flows are also supporting prices in regional SA and WA, alongside less stock for sale and in some pockets, mining and agriculture exposure.

Top 5 suburbs for highest yields

The five suburbs with the highest rental yields on our interactive map are:

• Edge Hill (Qld): 7.32%
• Freshwater (Qld): 6.93%
• Milton (Qld): 6.73%
• Plympton (SA): 6.70%
• Osborne Park (WA): 6.58%

These yields are particularly attractive in the current market, substantially higher than traditional savings or fixed interest rates, indicating these suburbs could offer strong cash flow for property investors.

High-yield suburbs often attract investors looking for immediate income rather than long-term capital growth. It’s essential for investors to consider their strategy – whether they prioritise cash flow (yield) or capital appreciation, which often varies inversely with yield.

However, it’s crucial to balance yield with other factors, such as the potential for capital growth, the stability of rental income, property condition, and location desirability.

A high yield can sometimes indicate a higher risk, such as in areas where property values are low due to less demand, or it can reflect a temporary spike in rental prices. Therefore, a thorough analysis that includes historical trends and future projections is recommended to ensure a well-informed investment decision.​​

Top 5 suburbs for proportion of renters

The suburbs with the highest percentage of rentals, indicating a higher prevalence of rented properties compared to owned ones, are:

• Harris Park: 71.45%
• Milton (Qld): 68.54%
• Spring Hill (Qld): 67.80%
• Lutwyche: 66.06%
• Kelvin Grove: 64.42%

These percentages show a substantial portion of the housing stock in these suburbs is occupied by renters, which could be indicative of several factors:

• a transient population, such as students or professionals, who may prefer renting over buying
• high investment activity where investors purchase properties to rent out rather than for owner-occupation
• potentially more affordable or flexible housing options that attract renters.

Suburbs with a high percentage of rentals might also reflect robust rental markets, possibly offering attractive opportunities for property investors due to the high demand for rental accommodations. However, it can also suggest that purchasing property might be less accessible or less desirable for residents in these areas.

This metric is crucial for understanding housing dynamics and can inform strategies for property management, investment, and local housing policies.​​

When discussing suburbs with a high percentage of rental tenure, it’s prudent to flag this as a potential risk factor for investors. High rental tenure can indeed indicate a dynamic and active rental market; however, there are associated risks that investors must consider:

Volatility in vacancies: Suburbs with a large proportion of renters can experience more significant fluctuations in vacancy rates.

This volatility can occur due to seasonal movements, such as students leaving at the end of academic years, or economic changes impacting renters’ decisions to move.

Rent fluctuations: The same factors that influence vacancy rates can also lead to fluctuations in rent prices. A sudden increase in available rental properties, for instance, can lead to competition among landlords, potentially driving rents down.

Dependence on economic conditions: High-rental tenure areas may be more susceptible to economic downturns. Job losses or reduced incomes can lead to higher default rates on rent and increase tenant turnover.

Tenant demographics: Areas with high rental percentages might attract certain demographics, such as students or young professionals, who may have more fluid living situations and thus contribute to a less stable rental market.

Investor sentiment: Investor behaviour can also contribute to market instability. If investors decide to sell their properties or change their investment strategies based on market perceptions, this could impact the local real estate market’s stability.

Investors should approach high-rental tenure suburbs with caution, conducting thorough due diligence and possibly diversifying their investments to mitigate these risks.

It’s also advisable for investors to have a clear understanding of local market conditions and to maintain a buffer to safeguard against potential income fluctuations. These considerations help in creating a more resilient investment strategy in the face of the inherent uncertainties of high-rental tenure areas.

A note on the data:

Ensuring sufficient data for analysis: Suburbs with at least five listings provide a baseline volume of data, ensuring that the analysis is not based on an extremely small sample size. A sample size too small could lead to skewed results, as it might not accurately represent the market dynamics of the suburb. For instance, a suburb with only one or two listings might show extreme price variations or buyer interest levels that are not indicative of the broader market trend.

Avoiding oversaturation of listings: On the other end of the spectrum, limiting the upper bound to less than 100 listings is equally important. In areas with a high volume of listings, the market dynamics can be more volatile and susceptible to short-term fluctuations.

For example, if a large number of new properties were suddenly listed in a suburb, it could create a perception of decreased demand or an oversupply, potentially impacting prices and buyer sentiment negatively. This high volume can obscure underlying trends and make it more challenging to discern the market’s true state.

Mitigating risk of short-term market shifts: The real estate market can be influenced by numerous factors, including economic conditions, interest rates, and local developments. By focusing on suburbs with a moderate number of listings, the analysis reduces the risk of these short-term shifts disproportionately impacting the overall findings. It offers a more stable and reliable picture of market conditions, which is particularly important for making informed decisions in property investment or analysis.

Balanced representation of market conditions: Suburbs within this range of listings are likely to provide a more balanced view of market conditions. They are not so small that a few transactions can skew the results, nor are they so large that the market dynamics become too complex to analyse effectively.

In summary, selecting suburbs with five to 99 listings allows for a more reliable and balanced analysis of the real estate market, offering insights that are relevant and actionable for various stakeholders, including investors, real estate professionals, and policy makers.