Latest NewsStrong Investor Returns Keeping Market BuoyantSunday, 26 February 2017

Investors have been returning to the market in droves since March last year.

Nationally the value of loans for investment has risen 17.6 per cent in the past 12 months and is 37 per cent higher than the lows of January last year.

This has meant that activity in the property market has not fallen as much as might normally be expected given the drop-off in owner-occupied housing finance that has occurred over the same period.

Loans for owner-occupation hit a nine-year low in April rebounding slightly in May, but the numbers of auction sales seem to be holding up well, even as clearance rates dip.

June-quarter house and unit prices to be released by Australian Property Monitors next week and by the Australian Bureau of Statistics the week after, are likely to show some slowing of the strong growth rates of the December and March quarters, but not to the extent seen in previous cycles when housing finance and clearance rates fell.

This is mainly due to investors stepping into the breach left by the fall in demand from owner-occupiers, and particularly first-home buyers. So where should investors be looking in Sydney if the goal is to increase their total return? The total return is be a combination of net capital growth and net rental return.

If we look at houses only (not units), what areas of Sydney have offered the best of each type of return over the past five or 10 years, and have capital growth or rental yields contributed most to an investor's overall return?

APM has calculated the average capital return (price growth) over the past 10 years for all Sydney suburbs, and the average gross rental yield for the past five years. If we make the assumption that an investor's net rental yield (after associated costs) is half of the gross rental yield, we can compare each suburb's estimated total return.

Looking at capital growth first, if we plot all the returns on a map of Sydney's suburbs, it's quite obvious that the best capital growth, with a few exceptions, has been within 12 kilometres of the CBD.

If we do the same for rental yields, the effect is reversed, with the more affordable areas of Sydney, those 20 kilometres or further from the CBD, showing the strongest rental yields.

Combining the two to see where the best total return has been, it's not surprising that it's the suburbs with the best longer-term capital growth that display the best overall return.

In Sydney, it's been the inner west all the way to the eastern suburbs, the upper north shore and lower northern beaches that have shown the best total returns for investors.

Of course, the entry price for investors in these regions are significantly higher than many can afford, with medians well in excess of the Sydney median of just above $600,000.

There are other pockets of Sydney that are in the upper rankings that are more affordable, such as the Fairfield region.

As long as you do your research, you'll be able to find good returns in your price bracket.

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