By Herron Todd White
October 2019

Eastern Suburbs Property Updates

Yield investing is an investment opportunity on the side of a primary income. Yield investing in the apartment market carries risk exemplified by oversupply and insufficient demand. In the past two years, this has been highlighted in other capital cities such as Brisbane, as well as in Melbourne where there have been big apartment developments in Docklands, North Melbourne, Southbank and the CBD. On the other side of the coin, yield investing is not limited to leasing residential apartments or houses. The prevalence of Airbnb as an affordable and accessible housesharing application has allowed apartment and homeowners, especially those who live or own property in high-density areas close to the CBD, sporting precincts and nightlife venues, the ability to take full advantage of leasing their house or apartment to Airbnb customers and find themselves making healthy yields off their investment properties.

In the eastern suburbs of Melbourne, there are three areas which identify different yields and can hold different purposes for an investor both in the apartment and housing market. These suburbs are Hawthorn, Box Hill and Ringwood. These three areas can highlight an interesting trend in yield percentages as an investor would travel east of the city centre. It highlights the demand for apartments in Box Hill and Hawthorn, more prevalently than Ringwood. However, it shows that Ringwood would be more desirable for yield investors looking to purchase in the residential housing market, more so than Boxhill or Hawthorn.

What can be interpreted from this data is an outward movement and desire to purchase apartments in high density, built-up areas in Boroondara, Whitehorse and Maroondah municipalities. Hawthorn is located six kilometres from the city centre and has fantastic public transport options with a range of train, bus and tram options.

The most recent ABS Census indicates the median age of denizen in Hawthorn is 33 years old, highlighting a mixed age group and a great opportunity to invest in the apartment market. One reason is that Hawthorn has seen average annual growth of 4.61%, due to the plethora of amenities and transport options close by, and there will be young couples and young professionals seeking to lease one and twobedroom apartments.

Box Hill garners the healthiest yield percentages of the three above mentioned suburbs. This can be attributed to the affordability of apartments while still having the ability to attract large weekly rent figures in the real estate market. The average apartment price in Box Hill is $73,000 cheaper than if you were to purchase in Hawthorn and $65,000 cheaper than in Ringwood. The weekly median advertised rent in Hawthorn is $415 per week for apartments and $400 per week in Box Hill.

Using the median advertised rent and the yield calculation method, it would take close to 3.5 years to earn $73,000 gross from a rental property in Hawthorn. If you were looking to purchase for value as a yield investor, looking at the market further east of Hawthorn is a smart consideration and would save you time and money.

An attractive aspect is the large spread of demographic types living in Box Hill. There are great institutions for students such as Box Hill TAFE, excellent transport options connecting commuters to the city and outer eastern suburbs, a great lifestyle and a multicultural environment. The suburb of Box Hill is a drawcard for yield investors as it is an established suburb with a growing population and connections to major roads and freeways.

Northern Suburbs Property Updates

The inner and outer northern suburbs of Melbourne offer investors a variety of investment options from units to houses, each offering their own benefits. The vast variety of property types in the area accommodates all types of investors, including people seeking to maximise potential yield and those looking at minimizing capital requirements.

Honing in on Richmond, a popular inner eastern suburb due to its location and bustling lifestyle, it becomes apparent the suburb does offer opportunities for investment, however it does come with several barriers to entry. With a median price of $1.177 million for a house and a weekly median advertised rent of $678, the suburb’s major barrier of entry for investment is the requirement of significant amounts of capital to purchase. It is noteworthy that this large sum only typically secures investors a two-bedroom, one-bathroom, no car park townhouse. Multiplying the median rent per week by 52 results in a total rental income of $35,256. Dividing this figure by the median rental price then results in a rental yield in the suburb of Richmond of 2.99% for dwellings.

In contrast to the outer north, Mickleham requires significantly less upfront capital for a greater return. The median price in Mickleham is $505,000 for a home, with a weekly median advertised rent of $410. Using the yield calculation method, an investor would generate an annual rental income of $21,320 resulting in an annual yield of 4.22%. This yield is 40% greater than the suburb of Richmond, whilst also offering a significantly larger home (four bedrooms, two bathrooms, two-car parking spaces). Higher yields in the outer suburbs such as Mickleham are attracting young investors who have less capital to invest. These higher yields are also giving them more security when it comes to mortgage repayments.

South Eastern Suburbs Property Updates

Melbourne’s outer south-eastern suburbs continue to prove to be a popular region amongst buyers, particularly for newly settled migrant families, young couples and first home buyers who are taking advantage of the affordable land prices in areas of the Casey and Cardinia districts. There are many estates to choose from in these fast-developing areas, in which house and land packages are available.

House and land packages are attractive for first home buyers and young families as they allow flexibility in designing their own home to cater to their individual needs. In the ever-expanding Cardinia Shire municipality, the median house price is $552,385 and $396,469 for a unit respectively (source: Corelogic, 2019).

In recent years, Pakenham has become a major growth area for the outer south-eastern suburbs of Melbourne appealing to young families with its proximity to parks, shopping retail outlets, schools and child care centres.

In the suburb of Pakenham, statistics show that houses are priced at an average of $485,000, generating a weekly rent of $360 per week, yielding at a rate of 3.5% to 4%.

Below are a typical house and unit for sale in the suburb of Pakenham.

  • House: 16 Jacaranda Way, Pakenham Price: $595,000
  • Features: A single-storey dwelling with five bedrooms, two bathrooms, two living areas, double garage and alfresco
  • Land area: 645 square metres

  • Unit: 2/16-20 Honeysuckle Close, Pakenham
  • Price: $437,000
  • Features: A double-storey townhouse/unit with three bedrooms, two bathroom and single car space. Land area: 174 square metres

Whilst the rental yields in the outer south-eastern suburbs may not be as high as properties in the CBD and inner suburbs, homeowners and investors can experience an average annual capital growth of 9.3% a year for houses and 14.49% for units in these growth corridor areas.

This just shows that different investors have different strategies when it comes to investing in property and it all comes down to the individual’s end goal as some may look for properties that generate high yields and others look for higher capital growth.

Melbourne CBD Property Updates

With a population of 170,000 people and growing, the CBD is home to people coming from all ages and backgrounds. Residents range from international students, young professionals and older couples. Melbourne has something to offer everyone

Living close to tertiary education institutions is one of the largest forces that drive rental demand in the CBD and CBD fringe areas. With two of the most prominent universities located in and near the heart of Melbourne, University of Melbourne and RMIT, international students make up the largest portion of enrolments each year, resulting in a high demand for apartments in the CBD and neighbouring suburbs, ultimately changing the rental market within the area.

These latest statistics show that apartments in the CBD are priced at an average of $435,000 and generate $530 per week in rent, earning a 5% to 6% rental yield for investors.

Latest statistics show that apartments in Carlton are priced at an average of $347,000, generating an average of $470 per week in rent, providing investors a rental yield of 7%.

Previously known as the world’s most liveable city for seven years running, Melbourne is an attractive city for tourists and investors. Whether it be a short or long-term arrangement, investors are thinking outside the box and finding ways to increase their rental property returns by taking advantage of accommodation hosting platforms such as Airbnb, where most property listings are heavily concentrated in the inner suburbs of Melbourne, particularly within the CBD areas.

Secondary hot spots for Airbnb listings include areas in St Kilda, South Yarra, Port Melbourne and Brunswick.

The average cost to rent an apartment via the Airbnb platform within the CBD and fringe areas can range from $120 to $190 a night. If we can assume that the weekly gross rent that can be collected via Airbnb is applied to the CBD’s medium price for apartments ($435,000), this would generate an upward yield of an incredible 10%.

With the correct marketing, property and location, there are many different ways an investor can strategically maximise their property in the CBD and fringe suburbs as Melbourne is the destination for tourists, young professionals and international students.

Western Suburbs Property Updates

The truth is, chasing the highest rental yield possible won’t necessarily be the best investment strategy for all investors. Experts in the field will be the first to advise against having a rental yield as a sole consideration when investing in property. The ultimate goal is to find a property that can tie together both rental yield and capital growth to create a sustainable and balanced portfolio moving forward, though this is a challenging outcome to achieve.

Melbourne’s west is home to the nation’s fastest-growing region over the past five years (source: realestate.com.au). The western suburbs as a whole have recorded a 36.9% growth in median house prices from 2014 to 2019 and are home to some of the highest rental yields found in Melbourne.

The west’s rental yield average for houses sits well above Melbourne’s gross rental yield of 2.7% (source: Core Logic).

The highest median house price growth has been recorded in new suburbs over the past five years, led by Aintree, Weir Views and Fraser Rise, all located in the City of Melton. Their price growth ranged from 218% in Aintree, where the median price is $617,000, to 136% in Fraser Rise, where the median is $598,000 (source: realestate.com.au).

The south-west is an entirely different property market with the likes of Williamstown and Newport boasting some of the most expensive properties western Melbourne has to offer. Williamstown currently has a gross rental yield of just 2.54% with a median house price of $1.3 million. When comparing these figures to the likes of Melton where you can purchase a house for $390,000 at a rental yield of 4.27%, one can easily assume they will be getting more bang for their buck, and rightly so.

However, the more blue-collar areas such as Melton, Tarneit, Truganina and Point Cook are known to have lower average wages growth and therefore lower ability to sustain capital growth.

While these areas are experiencing strong population growth and they have enjoyed strong capital growth over the past few years as the rising tide of the strong Melbourne property market lifted all ships, now that the cycle has reached its mature stage, many of these locations, especially the blue-collar suburbs may struggle.

Speak with a Melbourne Mortgage Broker today.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.