How is Sydney sitting for positive rental yields?

By Rich Harvey, CEO, propertybuyer.com.au

If you're looking into property in Australia, you will need the right advice and planning to gear your property accurately. When you engage a buyers' agent to help you select the right property and start making cashflow from your rental yield, chances are you will be after positively geared properties.

One of the most crucial elements of acquiring this kind of property is understanding the rental market. With this in mind, let's take a look at the current state of retail prices and yields.

Sydney surges, against the odds

According to the December quarter rental report from Andrew Wilson of the Domain Group, rents in Sydney have continued to increase. The report states the median rental price for houses in Sydney is now $520, which represents a 4 per cent increase across 2014.

This is despite a record level of investment activity, as noted by the Australian Prudential Regulation Authority in their 2014 September quarter property exposures. These figures noted that 37.4 per cent of new lending for residential property had been borrowed by investors, an increase on the previous quarter. 

For those more interested in buying an apartment as an investment piece, the same issue has occurred. Despite a spike in the number of apartments on the market, median rents have stayed high, sitting at $500 per week according to the Domain report. This means rental yields of 4 per cent for houses and 4.48 per cent for units in Sydney. But with prices higher than anywhere else in the country, this can still be a healthy amount of cashflow. 

Demand still strong

Despite these rental prices moving up, demand for housing across Sydney is still healthy. SQM Research currently lists the vacancy rate in the Harbour City at 2.1 per cent, which is significantly better than many other capitals, including Melbourne, which is currently at a vacancy rate of 3.2 per cent.

What this means for you as an investor is that the fish are biting, and it's important to set the right bait for your financial needs. Depending on where in greater Sydney you buy, you could be looking at anything from $400,000 to $3 million for a home, and you need to have your rents adjusted to match mortgage payments and get the appropriate rental yield. 

Brisbane on the rise

Brisbane is another major city tipped for strong price growth over the next three years.  While it is unlikely to have the same heat in the market as Sydney has experienced, it is predicted to have around 17% growth in median house prices over the next 3 years according to research economists BIS Shrapnel. 

We are currently sourcing positive cashflow properties in established suburbs in the Brisbane area that are yielding more than 6% without having to add a granny flat or complete renovations.  When you do these activities the yields rise even more.  We are also sourcing dual living properties where you can achieve strong positive cashflow yields by building a 3 +2 or 4 + 1 bedroom house under the one roof.  These are brand new properties with high depreciation and good long term prospects.

However, getting the right positively geared property is a delicate matter, and something that you should seek the advice of a buyers' agent on, lest you find yourself charging too much rent and failing to attract tenants - or conversely, not enough rent, leaving you missing out on cashflow.