The Pulse August 2024

Hotspotting

Contemplate this scenario: you buy a capital city house for $380,000 and a year later it has a market value of $530,000. Up 40% in 12 months, providing a capital gain of $150,000.

Or this one: you paid just $240,000 for a house in a regional centre and a year later it’s worth $325,000 – up 35% in 12 months. And you’re getting a rental return above 7%.

A third example is paying $380,000 for a house in a capital city and watching it grow to $480,000 in 12 months. Meanwhile, rents have grown 25% in your suburb, underpinned by a vacancy rate of 0.4%, and your rental return has increased from around 6% initially to well above 7% a year later.

These are some of the scenarios to emerge from our analysis of the 50 locations in the special report, The Pulse, published quarterly by Hotspotting in conjunction with depreciation experts Washington Brown.

That 40% capital growth scenario has occurred in the Perth suburb of Hillman, which has benefited from the extraordinary price increases experienced in the Western Australian capital in the past 12 months.

The 35% leap in values happened in the little-known NSW regional town of Moree, where values have been boosted by construction of Australia’s biggest national infrastructure project, the $35 billion Inland Rail Link which spans the three major eastern states.

The third scenario relates to Elizabeth East in the northern suburbs of Adelaide, a precinct heavily targeted by first-home buyers and investors for its affordability, good amenities and proximity to major employment nodes.

These and other outcomes in locations featured in our report in the past year demonstrate one of the fundamental philosophies that underpins our recommendations to investors:

Contrary to a popular real estate theory, you don’t need to choose between capital growth and high rental yields. If you select your location well, you can benefit from both.

The 50 locations featured in The Pulse report are chosen because they offer above-average rental yields – but we also require our nominated locations to have the credentials for capital growth.

Of the 50 locations in the current edition of the report, 48 have recorded growth in their median prices in the past 12 months – including 30 with capital growth above 10%.

The top 10 have all had price rises well above 20% - in addition to providing superior rental yields.

But the truly outstanding markets are the ones with exceptional growth in both prices AND rents.

Consider these examples.

Firstly, Armadale in WA.

Before Perth’s boom convinced investors that any house in Perth was a good buy, few people wanted to buy in downmarket Armadale. Now it’s flavour of the year for those seeking a cheap house with high growth prospects. The data for the past year is extraordinary, with the median price up 35% and rents up 28%. The median is now $460,000 but you can still get 6% yields.

Then, there’s Carey Park, WA: This affordable suburb in the key regional city of Bunbury has become a sought-after location for investors seeking low entry prices and high rental yields. Those who followed our advice and bought there a year ago would be happy: the median house price has jumped 22% and rents are up 23%. The median price is still under $400,000 and rental yields remain around 7%.

What about Murray Bridge, SA: Regional South Australia seldom features in the national discussion about real estate growth but it has excelled in recent years, led by Murray Bridge, where both the median price and the median rent for houses have risen 20% in the past 12 months. Vacancies are ultra low at 0.4% and, despite the growth of the past few years, the median price remains within reach of most buyers at $430,000.

And then there’s Woodridge, QLD: This is another unfashionable option which has nevertheless out-performed. Typical units in this southern Brisbane suburb now cost above $300,000 following annual median price growth of 24% - and, with rents also rising 16%, investors can find yields between 6% and 7%, with the vacancy rate around 1%.

There are many other examples like these on our list of 50 key suburbs which we have listed for their superior rental yields AND potential for capital growth.

And they’re all affordable places that should fit within the budgets of most investors.