Gold Coast among targets investors chasing rental income should consider
Rental price growth is slowing, necessitating a shift in focus for property investors looking to maximise their returns.
Rental price increases are slowing but this is more a reflection of tenants’ capacity to continue to pay higher and higher rentals.
In the four years before the pandemic, rents nationally increased by only $25 per week.
Since the start of the pandemic, rents have risen on average $200 per week across Australia.
Perth topped the list, with an increase of $280 per week, while Hobart was the lowest at $100 per week. Interestingly, the comparative strength in rental growth is broadly similar to what we have seen in real estate price growth.
Rental growth is decelerating, as is real estate property value growth, but the fact remains it continues to rise in most parts of Australia. This is predominantly because the supply and demand equation continues to favour demand for rental properties well exceeding supply.
What is clearly emerging now is substantial differences from different parts of Australia.
The differences between our strongest and weakest markets are largely because of internal migration among Australians and to a lesser degree, we see in certain parts of Australia that higher rentals have actually forced a large percentage of Australians into areas that they would not have previously considered.
As such, we see quite a shift in the locations with the strongest rental demand and where yields are most favourable for investors.
For example, the Gold Coast population has already passed the 700,000 mark, with the latest data showing the rate of migration to the city continuing to accelerate. It is projected it will pass the million benchmark by 2037.
The city attracted its share of overseas migration but what is so significant is the huge migration of people from other parts of Australia. The Gold Coast has over the past 10 years experienced the strongest population growth in the whole of the state. The Gold Coast is now home to 12.2 per cent of the state’s residents.
Yet in other pockets throughout Australia, we are seeing rental prices actually in decline because demand has weakened substantially as people move from other population bases.
Property investors need to broaden outlook
Investors now have to move away from thinking in terms of buying an investment property close to their home base and look more at investing in markets perhaps outside their state that have strong prospects of onward growing rentals through stronger population growth.
An important factor that has emerged more recently is that markets such as Victoria have now seen their governments impose higher property taxes, therefore eroding a percentage of investors’ yields.
Rental yields around the country range from 7.3 per cent in regional Northern Territory to a modest 3.1 per cent in Sydney.
Among the capital cities, Darwin rental yields are at 6.5 per cent according to the latest CoreLogic data, ahead of Hobart and Perth at 4.3 per cent and Canberra (4.0 per cent). There's a drop to Adelaide (3.8 per cent), Brisbane (3.7 per cent) and Melbourne (3.6 per cent).
Investment property is not only delivering the best yields in more than 40 years, but when added to the annual increase in property values, it remains a standout that is a safe and secure investment.
With interest rates reducing the capacity of home occupiers to continue to pay higher and higher prices, it opens the door for investors to compete more favourably with home buyers in securing properties.