Commercial real estate is becoming more favourable for property investors, as soaring house prices continue to rise in certain cities.
Sourceable said that all metrics indicate that housing, especially in markets like Sydney and Melbourne, is highly expensive if not overvalued compared to rental yields.
For investors, housing offers the lowest rental returns, where the gross rental yield on housing is estimated to be at 2.9%. This is a return that is cut down to 1% after expenses.
Commercial properties, on the other hand, have an estimated gross rental yield of 6%.
The lower rental yields for residential property buyers lead them to be highly dependent upon capital growth for gains. For the next 12 months, AMP Capital predicts home values in Australia will rise by roughly 5%.
Perth and Darwin may suffer declines in house prices due to the resources sector, but cities like Sydney and Melbourne will show stronger capital growth.