As federal budget changes to negative gearing and capital gains tax reshape the investment calculus for property buyers, new data from realestate.com.au points to where yield-focused investors are likely to turn their attention — and the answer, increasingly, is regional Australia.
Across most of the country, rental yields declined over the year to as home price growth outpaced rent increases, with Sydney and Melbourne the exception, where yields held broadly flat as the two largely offset each other.
The standout numbers are in regional Western Australia. Coolgardie recorded the highest gross rental yield nationally for houses at 11.5%, followed by Kambalda East at 11.0%. For units, Newman topped the national rankings at 13%, with Pegs Creek close behind at 12.9% — figures that dwarf anything on offer in the capital cities.
The data covers the 12 months to April and excludes suburbs with fewer than 10 properties sold or advertised for rent over the period.
Darwin led among the capitals, with Berrimah recording 7.6% for houses and Karama and Malak both reaching 7.7% for units. In Sydney, Cranagan Bay led for houses at 4.9%, while Ultimo and Auburn tied for the top unit yield at 6.3%. In Melbourne, five suburbs — Warburton, Hastings, Clyde, Wollert, and Coolaroo — shared the equal highest house yield of 4.3%.
Across the capitals, units consistently outperformed houses on yield, largely reflecting their lower purchase prices.
REA Group economic analyst Luc Redman (pictured) said the budget changes were already shifting investor priorities.
"With the proposed changes to negative gearing and capital gains taxation, investors, particularly new property investors, will be looking towards purchasing cashflow positive assets. With current interest rates and the expectation of at least one more rate hike, the search will turn to higher-yield properties," Redman said.
He pointed to the structural reasons regional yields tend to run higher.
"Historically, there has been a higher concentration of these yields in regional areas where supply hasn't kept up with demand driven by 'boom or bust cycle' economic activity, such as mining,” Redman said. “Industries and regions that rely on a transient workforce tend to achieve higher yields, as workers opt to rent rather than buy, so dwelling prices face less upward pressure than rental prices."
The traditional preference for capital city investment may be shifting.
"The trade-off between capital growth potential and yield was traditionally more skewed toward capital cities, but investors may begin to look to regions as the settings change," Redman said.
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