Residential property has been one of the nation’s top performing asset classes over the last 12 months, with values soaring 21.58% nationally in the last year according to property research firm, CoreLogic.
Not surprisingly, investors are piling into the market. Finance to investors jumped 83% in the 12 months to the end of September 2021 (Australian Bureau of Statistics).
The downside to rising values is declining affordability. This is especially the case in our largest cities – Sydney and Melbourne. In these state capitals, investors with a buying budget of, say, $600,000 are increasingly faced with the option of an apartment rather than a house, or properties located a considerable distance from city centres.
Both options can impact a property’s returns. Location is a key driver of tenant appeal and long-term returns, and it is the land component of a property that often underpins capital growth (after all, buildings depreciate whilst land appreciates).
With this in mind, let’s take a look around the state capitals to see what a budget of $600,000 will buy within a 15 kilometre radius of the CBD.
Median house value: $1,333,767, Gross yield: 2.2%
Median apartment value: $837,262, Gross yield: 3.0%
Sydney has notched up capital gains of 25.2% over the past year (CoreLogic), but the city now faces serious affordability challenges. With a median house value in excess of $1 million in October 2021, a budget of $600,000 doesn’t buy much in Sydney. Even the apartment market, with a median value of $837,262, leaves few options for inner ring suburbs.
Property within budget: 16/29-31 Albert Road, Strathfield, NSW 2135
Type: Apartment, 55sqm, 1 bedroom, 1 bathroom
Comment: Strathfield is a popular suburb with good transport links and retail facilities. However, this older style apartment has just 55 square metres of floor space – and very little land component.
Median house value: $972,659, Gross yield: 2.4%
Median apartment value: $621,898, Gross yield: 3.5%
Melbourne has the dubious distinction of being the most locked-down city on the planet. While this has seen the market record lower annual price growth than its counterpart in New South Wales, median property prices remain well above the national average.
As Melbourne’s house price nears the $1 million mark, investors on a budget of $600,000 looking for proximity to the CBD are constrained to the unit market or smaller strata properties. However, the exodus of overseas students out of Melbourne has resulted in vacancy rates as high as 10% in suburbs like Carlton, adjacent to the University of Melbourne (SQM Research).
Property within budget: 1/2 Epstein Street, Reservoir, Vic 3073
Price: $590,000 – $620,000
Type: Townhouse, 66sqm, 152sqm land, 2 bedrooms, 1 bathroom
Comment: A budget of $600,000 limits investors in Melbourne to a smaller strata property. In this case, the Reservoir townhouse has a small floorspace, set on just 152 square metres of land.
Median house value: $550,044, Gross yield: 4.2%
Median apartment value: $402,525, Gross yield: 5.3%
Perth’s housing market continues to stand out for affordability, the relatively mild impact of COVID-19 on the local economy, and the flow of interstate migrants to WA, which has been one of the highest nationally according to the Australian Bureau of Statistics . Despite recording annual growth of 16.37% in the year to October 2021, the market remains one of the most affordable of Australia’s capital city markets which, combined with the recent growth in rents, has seen Perth offer the second highest rental yield across the nation (CoreLogic, October 2021).
Perth’s affordable values give investors a much broader choice of suburbs and property types. A budget of $600,000 covers such a considerable amount of ground in Perth that we have presented two very different properties – one of which is situated just 7km from Perth’s CBD .
Property within budget: 10B Eastfield Court, Ferndale, WA 6148
Price: Offers from $600,000
Type: House, 214 sqm, 448sqm land, 4 bedroom, 2 bathroom
Property 2 within budget: 5A Warwick Street, St James, WA 6102
Price: Offers from $550,000
Type: House, 134 sqm, 270sqm land, 4 bedroom, 2 bathroom
Comment: Such is the value offered by the Perth market, a budget of $600,000 buys the trifecta – a lot of house, land and a desirable near-city location. While offering a smaller lot size than the first property situated 15km from the Perth CBD, the latter of these two examples is located in St James, which is just 7 kms from the city centre.
Median house value: $591,558, Gross yield: 3.8%
Median apartment value: $372,520, Gross yield: 5.1%
Property within budget: 4 Chandada Street, Seaview Downs, SA 5049
Price: From $600,000
Type: House, 110sqm, 900sqm land, 3 bedrooms, 1 bathroom
Comment: Adelaide’s affordability means a buying budget of $600,000 could just see an investor scrape into the house rather than apartment market. This Seaview Downs property offers a generous block, though it is located slightly over 15 kilometres to the Adelaide CBD. It’s worth noting, the property sold recently for $655,000.
Median house value: $731,392, Gross yield: 3.6%
Median apartment value: $437,086, Gross Yield: 5.0%
While the pandemic momentarily cooled the Brisbane market, the city has seen a 22.3% uptick in values over the past year as interstate migration drives growth (CoreLogic). Brisbane has been in an upswing for a few years now, and is therefore further into its growth cycle than Perth, suggesting softer gains ahead.
With a median house value of $731,392, a budget of $600,000 can make it challenging to find a house located with 15 kilometres of the CBD. That said, the apartment market, with a median value of $437,086, offers more scope for proximity to the city, albeit to the detriment of land value.
Property within budget: 2/139 Pinelands Road, Sunnybank Hills Qld 4109
Price: Offers from high $500,000 to low $600,000s
Type: Villa, 177sqm, 364sqm land, 4 bedrooms, 2 bathroom
Comment: Investors looking at houses in this price bracket can find buying opportunities. In comparison to Perth however, fewer properties with development potential are available at the $600,000 price point. Inner-ring suburbs are more expensive, with local buyer’s agents reporting that investment-grade stock is priced upwards of $700,000.
It’s hard to argue with the value for money that Perth offers. Quite simply, the city provides plenty of bang for an investor’s buck. Rising interstate migration to the WA capital will likely put pressure on property values when borders re-open, meaning investors who act sooner may have a window of opportunity to take advantage of affordable values and maximise future gains.
SQM Research – https://sqmresearch.com.au/graph_vacancy.php?