Property investors reap higher yields amid rental squeeze

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After stagnating since late 2006, there have been encouraging signs that rental returns are finally improving.

The latest report from RP Data showed that that there are now around 180 suburbs throughout mainland Australia achieving a gross rental yield of at least 6%. Just over one-third of these suburbs are within the capital city metro areas and the remainder are located in regional townships, particularly resource-intensive and coastal lifestyle locations.

Tim Lawless, national research director with RP Data, said that the uptrend has been boosted by softening capital growth, together with an exceptionally tight rental market across the board.

Adelaide, Brisbane and Melbourne are the only capital cities that haven't shown an improvement in gross rental yields between March 2007 and March 2008, due to the fact that these markets are still showing above average rates of dwelling value growth.

In Sydney, Ultimo and The Rocks area are two markets achieving quality rental returns.

Lawless added that the best metro rental yields can be found in the outer suburbs along transport corridors where housing prices are low relative to the rental market.

Investors in Darwin are likely to achieve higher growth in yields amid chronic shortage of rental properties and strong demand.

According to the latest Real Estate Institute of Australia (REIA) report, Darwin rents are the highest in Australia, with median rents for a three-bedroom house increasing to $490 per week. An average household is now spending 28.1% on rent, compared with 23% required for home loan repayments. This means that renting property in Darwin is now more expensive than buying.

 

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