Property investors seeking high rental yields in Greater Sydney could look to the west and the Central Coast, new data reveals.
But they could find even higher yields elsewhere in Australia.
Sydney’s highest-yielding suburbs for units are Auburn and Villawood, where the median weekly asking rent of $650 delivers a gross rental yield of 6.3 per cent, on Domain data.
Next is Blacktown, where the $550 median unit rent delivers the same yield.
High-yielding suburbs for houses include Gilead in Campbelltown, where the median weekly asking rent of $795 translates to a 4.5 per cent yield, and Woongarrah on the Central Coast, where the $780 median rent delivers a 4.3 per cent yield.
Sydney’s lowest-yielding suburbs are generally closer in. The rental yield on a house in Vaucluse, where the median rent is $3300, is just 2.0 per cent, while the yield on a typical $1200-a-week house in Strathfield is 2.1 per cent.
Citywide, the median gross rental yield is 4.8 per cent for units and 3.1 per cent for houses.
Rental yields measure annual rental income as a percentage of the value of the property. Gross yields do not consider property-related expenses such as maintenance and strata levies.
Dr Nicola Powell, Domain’s head of research and economics, said areas where property is comparatively cheap to buy generally had higher yields.
“On the flipside of that, you tend to see very weak rental yields in premium locations because purchase prices are so high compared to rental incomes.”
Asking rents and property values do not necessarily move in tandem, Powell said, leading to disparities in yields between areas.
“There are all sorts of factors, other than property values, that contribute to rental prices. In Blacktown, for example, there might be strong demand for family homes to rent, but less demand to buy.”
Powell said the Federal Government’s proposals to end the negative gearing tax concessions for existing properties and eliminate the capital gains tax discount in favour of taxing inflation-adjusted gains meant property investors would become more focused on yields.
“Before, an investor’s strategy when they were looking at Sydney property was to negatively gear and chase capital growth. That has been flipped on its head. Now, they may shift towards higher-yielding environments.”
For some, that may mean looking further afield.
The highest yields, for investors who choose this, are in Baynton, a suburb of Karratha in Western Australia’s Pilbara region, at 9.7 per cent for houses. In Kalgoorlie, units deliver a yield of 9.40 per cent.
Even some Melbourne unit markets have yields of 7 per cent-plus.
None of the top-20-yielding suburbs for houses or units is in NSW.
Shane Oliver, chief economist at AMP, thought investor activity in the low-yielding Sydney market would “drop noticeably”.
“I suspect investors will back off for a while. They will be waiting for yields to increase, either through rents going up or prices coming down, or some combination of the two.”
The proposed changes do not apply to property investments made before the budget was delivered, so those investors can continue to negatively gear their properties.
They can negatively gear purchases of newly built properties. But Oliver expected this to be relatively uncommon.
“New builds bring with them uncertainty and extended timelines. More likely, an investor is going to look for income flow from another asset class.”
Buyers’ agent Brendan Clark said investors keen on Sydney had significant scope to improve their rental yields by making property improvements that allowed them to increase asking rents.
“Aside from the basics like floorboards and painting, kitchens are where you can spend less and get more. Full bathroom renovations can be very expensive, but you can do affordable things like paint over the top of old tiles and upgrade vanities.”
Making such improvements can pay dividends, Clark said.
“If the home looks like it hasn’t been updated in forever, you’re not going to attract people who want to look after it and live there a long time. If you renovate, not only will you generally get a better yield, you’ll also attract a better-quality tenant.”
While maximising yield is an attractive proposition, landlords should not necessarily pursue it at the expense of retaining reliable long-term tenants, Clark said.
He owns a two-bedroom investment property in the inner west and recently decided not to increase the rent, even though his property manager advised him to.
“The tenant has been there for a number of years, and she’s an excellent tenant. She pays her rent on time and keeps the place in pristine condition,” he said.
“That’s a tenant I want to keep. So, I’m not necessarily looking to maximise my rental yield. I’m looking to make sure that person’s happy.”
Dan F Stapleton writes on First Nations issues, visual art, property and more. His writing has appeared in The New York Times, the Financial Times and others. He is based in Sydney.