Top 10 suburbs for rental growth

As we move into the winter season, the climate for investors is very positive. Property prices are slightly softer and rental yields just keep on rising – they’re up 4.6 per cent nationally over the past six months alone, according to RP Data.

In addition, the banks are fighting hard right now for new mortgages and they’re also lending at 95 per cent LVR again, so there are many great deals available for those who want to invest.

There are a few reasons why the rental market is so tight.

We have an undersupply of property, and in addition, we’re nowhere near meeting the demands of our population growth. This is particularly so in desirable locations such as the inner and middle rings of our capital cities and along the Eastern Seaboard.

Fuelling rental demand is Gen Y’s desire for CBD and lifestyle living. Many are renting in the locations they love with no intention of buying because this usually means moving to locations where they don’t want to live (such as outer ring suburbs). Their desire for the Great Australian Dream is simply not as strong as their desire for a great lifestyle.

Other Gen Ys are renting longer to save the deposit, although things are easier now with banks once again lending up to 95 per cent LVR, so a 20 per cent deposit is not necessarily required.

In terms of demand from investors, it’s pretty strong and this is likely to continue. Latest AFG figures show 35 per cent of all new home loans nationally are for property investors.

But it’s not just mum and dad investors out there looking for the typical two bedroom apartment to invest in. We also have an increasing number of people using their self-managed super funds to buy property. Plus there’s an increasing trend in young renter-investors buying an investment property first so they can stay living (and renting) in the locations they like.

Over the year to March Quarter 2011, RP Data stats show that rents went up 5.3 per cent in Sydney; 4.5 per cent in Hobart; 4.4 per cent in Perth and 2.8 per cent in Adelaide. Canberra was up 2.5 per cent and Melbourne 0.9 per cent. Lagging behind is Darwin, down 3.7 per cent; and Brisbane, down 1 per cent.

When you drill down to the suburb level, the numbers become more interesting. Of Australia’s top performing capital city local government areas (LGAs) for rental growth, 22 out of 35 are in Sydney.

Here is a list of the Top 10 LGAs for rental growth over the year to March Quarter 2011.
1. Woollahra, Sydney – Houses – 22.2 per cent to 00 per week
2. Nedlands, Perth – Houses – 20.4 per cent to 5 per week
3. Burwood, Sydney – Houses – 19.6 per cent to 0 per week
4. Sorell, Hobart – Apartments – 18.2 per cent to 0 per week
5. Claremont, Perth – Houses – 17.2 per cent to 0 per week
6. Cottesloe, Perth – Houses – 16.7 per cent to 5 per week
7. East Fremantle, Perth – Houses – 16.4 per cent to 5 per week
8. Ashfield, Sydney – Houses – 15.6 per cent to 0 per week
9. North Sydney, Sydney – Houses – 15.3 per cent to 8 per week
10. Lane Cove, Sydney – Apartments – 15 per cent to 0 per week

Source: John McGrath, McGrath Estate agents