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Where is the best place to buy rental properties?

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Nila Sweeney
Keen to get a foot on the property ladder? If you’re looking to invest, it might pay to check out the apartment listings instead of houses, with experts predicting that units could deliver the best profits in the coming years.
 
Often when people talk about investing in real estate, they automatically default to houses – but that’s not always the best strategy, says Ayda Shabanzadeh, managing director of Grow Consulting Group.
 
“One of the biggest investing misconceptions is that a house and land is automatically a better investment than units, but it actually comes down to which type of property is in demand,” she says.
 
Recent changes in population growth and demographics mean that over two million Australians currently live on their own, so demand for units “will increase moving forward”, she explains. Consequently, investors should consider parking their money in apartments, where the demand is strongest.
 
“For the first time in nearly 100 years, unmarried Australians are in a majority as 25% of households contain only one person, up from 14% in 1971,” Shabanzadeh explains.
 
“According to the Bureau of Statistics, by 2013 couples without children and people living on their own will make up the vast majority of families living in Australia. This means there will be less demand for larger four bedroom homes further out from the city.”
 
According to RP Data research analyst Cameron Kusher, many suburbs around Australia have delivered strong apartment rental returns over the past 12 months.
 
For instance, the popular inner city suburb of West End in Brisbane recorded the largest increases in yields (+26.3% across 303 listings) in the year to June, with rents increasing from $380/week last year to $480/week this year.
 
This is an incredible result considering the economic climate in 2009, which afforded first homebuyers access to the lowest mortgage interest rates in 50 years and the First Home Owner’s Grant Boost.
 
“Rentals have recorded lower levels of growth [overall], largely due to the fact that first homebuyer demand was so strong during 2009,” Kusher admits.
 
“This record number of first time buyers – who were mostly previously renters – were active buyers during 2009, which in turn eased upwards pressure on rental rates.”
 
However, Kusher says his analysis indicates that there are still a number of suburbs where unit rental growth is strong.
 
With property value growth slowing and fewer active buyers in the market, Kusher anticipates that rents are likely to increase across the board, particularly with quality properties located in superior locations close to transport and retail amenity. 
 
 
Top 10 capital city suburbs
Greatest growth in median unit rents

Suburb City Rental yield June 2009 Rental yield June 2010
West End Brisbane

$380

$480

Balwyn North Melbourne

$360

$453

Hampton East Melbourne

$340

$408

Vermont Melbourne

$285

$340

East Fremantle Perth

$295

$350

Altona North Melbourne

$225

$265

Leumeah Sydney

$200

$233

Hallam Melbourne

$233

$270

Queenscliff Sydney

$455

$525

Liverpool Sydney

$260

$300

 (12 months to June 2010, RP Data)

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