Railway suburbs offering ripe investment opportunities

by AB25 Jun 2013

Suburban units that are serviced by public rail services are shaping up to be the new cash cow for savvy real estate investors, according to the latest findings from PRDnationwide's research department.

Findings from the group’s Australian Railway Suburbs Report show that across Australia, railway units typically present a more attractive investment opportunity and deliver stronger rental yields than properties that do not have ready access to rail transport hubs.

Low vacancy rates ranging between 1.2% (Perth) and 2.7% (Melbourne) in railway suburbs in Australian metropolitan centres and rental yields that are ‘consistently outperforming’ those of houses and unit accommodation in non-rail suburbs are prompting investors to bargain hunt properties within striking distance of rail transport.

In particular, railway suburb units are appearing to be ideal for cashed-up investors looking to buy and hold in the Sydney and Brisbane markets, with affordable prices and low vacancy rates an indication of the current strength in the rental market.

"Investors snapping up properties in railway suburbs in west of Sydney are experiencing rental yields of between 4.6% and 5.2%," says PRDnationwide director of research, Aaron Maskrey.

"Similarly, houses in railway zones in Brisbane offer a robust investment opportunity as they consistently deliver higher rental yields whilst being no more expensive to purchase than unit accommodation in non-rail suburbs."

The scenario is slightly different in the extremely tight rental market in Perth, with units just nudging out houses as the most appealing investment stock through greater rental yields.

"Historically, Perth rail and non-rail localities have experienced negligible price differences," says Maskrey. "However, we can see that investors are buying into railway suburbs with a noticeable 19.3% increase in unit sales when compared to 12 months ago. Outside of inner-city Perth to the North and East, unit owners are pocketing rental returns that are around 1% more lucrative than similar sized and priced units in non-rail areas."

In Melbourne, unit investments are not delivering the higher rental yields seen in other capital cities, with some localities to the North and the West of the city actually being outperformed by non-rail suburbs. Maskrey says the city is going through a transitional phase in the unit market that’s seeing prices and yields in both railway and non-railway suburbs remain closely linked.

"The Melbourne unit market is currently transitioning through its existing stock, resulting in lower yields compared to those seen in Sydney, Brisbane, or Perth. However, railway house stock in Melbourne consistently maintains a higher price threshold so there are still buy-opportunities in the Victorian market."