In the past six months, the value of investor loans increased by 48.1%, compared with a 29.7% increase for owner-occupier loans.
Investors are becoming more active in the property market.
In the March 2021 quarter alone, investment lending for houses surged by 28.7%, while the value of home loans was only up 12.4%.
Rental yield vs capital gain — Where to invest?
- In New South Wales, property investors accounted for more than 30% of mortgage demand in March 2021.
- Sydney is the most expensive capital city with low rental yields. However, it has the highest average annual capital gain in house values, averaging 6.6% each year, while units average 4.5% annually. For investors focused on capital gain, rather than rental returns, this explains why Sydney is popular.
- For those looking for cashflow opportunities, these markets experienced higher rental yield: Darwin (5.6% for houses and 7.2% for units), Hobart (4.4% for houses), Perth (4.3% for houses and 5.4% for units) and Canberra (5.5% for units).
- Rental yields are also higher in regional markets. Regional Western Australia experienced the highest gross yield for units at 8%, while regional Northern Territory recorded a rental yield of 6.3% and 5.9% for regional Western Australia.
- The total return measures annual capital gain and annualised gross rental return, which are areas for best overall investment returns. Over the past 12 months, the strongest performers for houses were in regional Tasmania, which experienced a total return of 24.5%, while Darwin experienced a 24.4% return.
- For units, the most robust overall returns were in regional Victoria and regional Queensland, at 19.3% and 16.9%, respectively.
Where are the rental market hotspots?
As per data from CoreLogic, rent values across combined regional markets outperformed capital city rents by as much as three times over the year.
The CoreLogic hedonic value index, which tracks the combined value of rent estimates, shows a 9.6% growth in the combined region areas, compared with 3.3 % growth for combined capitals.
The table reveals a tightening of regional rental markets.
- Rent listings on average halved over the year.
- On average, there was a 9.4% increase in rent values, which includes a 17.6% increase in Richmond-Tweed and a 2.3% increase across Capital Region.
- The average time a rental property spent on the market decreased from 25 days to 17 days over April 2021. Gold Coast and several other areas experienced the lowest typical days on the market, with a median time of 14 days.
- Tenants in these regions have to compete harder to get rental accommodations.
Why is regional Australia experiencing tight rental conditions?
- People prefer to stay in regional areas due to the pandemic. Data from the Australian Bureau of Statistics (ABS) reveal in 2020, 233,100 people arrived in regional areas while 190,200 departed for capital cities.
- There is an influx of interstate migration. Regional areas experienced a 43,000 net gain compared to 18,900 in 2019. The gain led to less rental stock available in regional centres. Regional Queensland had the biggest net inflow of 17,000 people, while regional Victoria had 13,400 people and New South Wales had 12,700 people.
- The ease of lockdown restrictions boosted domestic tourism. The short-term rentals that were converted to long term rentals were reconverted. This trend is most prominent in Geelong, Shellharbour and parts of the Mid-North Coast. These areas had a dip in short term rentals from March to September 2020. However, rental volumes are now trending closer to pre-pandemic levels in the March 2021 quarter.
- High-income employees are relocating from cities to regional areas due to remote work capabilities.
- The rising property prices caused by the demand boom put upward pressure on rental values. People are opting to rent instead of buying a home.
Final say — as overseas migration will remain low, regions with strong interstate and internal migration will experience a higher level of housing demand. Look for regions with a diverse economy that can support job growth, maintain a good employment rate, and have infrastructural development.
Are you buying your first investment property or already a seasoned investor? Our mortgage brokers can provide you with property and suburb reports to help with your investment goals. Call us today at 1300 889 743 or enquire online.