Where investors are making the most money on property in Australia

Investors are reaping huge returns on many homes around the country, with the yield on one type of property – apartments in Darwin – smashing all records since they began.

The Top End units have been delivering a thumping 7.4 per cent yield to their owners, the highest ever for any capital city in Australia, even for houses, the latest Domain Rent Report, released on Thursday, has revealed. That profit is up a staggering 16.1 per cent from this time last year.

“It’s an extraordinary figure,” said Domain chief of research and economics Nicola Powell. “Rental prices for Darwin units are increasing at a faster pace than sales prices.

“There’s a strong demand for rentals there as the city’s attracting a lot of people who see it being a safe place through COVID-19 and who are moving there, especially with being able to work remotely. But the question is, what’s going to happen post-pandemic?”

While Darwin was the nation’s star performer with its houses also delivering the top yield – the profit generated each year from an investment as a percentage of its value – of 5.63 per cent, most other cities performed strongly … with the exception of Sydney and Melbourne.

They both returned the lowest yields of the nation: Sydney 2.9 per cent for houses and 3.55 per cent for units, and Melbourne only slighter higher at 3.09 per cent for houses and 3.95 per cent for units.

That was mostly as a result of prices rising much more quickly than rents in the two cities, with Sydney house prices soaring to a record-breaking median of $1,309,195 over the first three months of this year, and the Melbourne median expected to hit $1 million.

All the other capital cities performed much more strongly. With houses, Perth was another standout with a yield of 5.11 per cent at June 2021, up 9.6 per cent over the year. Three of the other top cities were slightly down from last year but were still giving stellar returns, with Hobart at 4.6 per cent, Brisbane at 4.58 per cent, and Canberra at 4.14 per cent, a record low for the nation’s capital. Adelaide was slightly up from 2020 at 4.53 per cent.

In units, Canberra offered the second-best yields at 6.05 per cent, up 1.1 per cent on 2020; Perth gave 5.76 per cent, up a mighty 11.3 per cent; Adelaide was 5.48 per cent, up 3.3 per cent; Brisbane was at 5.23 per cent, up 0.8 per cent; and Hobart 4.62 per cent, up 4.6 per cent.

In Darwin, that city’s excellent returns were expected by many agents. “We’re the cheapest capital city in the country, which helps, and everyone wants to live here now as we’ve had so few COVID Iockdowns, and we don’t live cheek-by-jowl with each other, like in a lot of cities,” said Darren Hunt, of Elders Real Estate Darwin.

“People can work remotely now and have Zoom meetings, so it’s no problem living here, with our wonderful weather and, when we open up again, our easy accessibility to Asia. And compared to Sydney and Melbourne, we’re so cheap. We had one man who bought an $800,000 property just because he said he didn’t want his dog – a doberman – to suffer through another southern winter.”

In Perth, yields have shot up partly because a lot of workers – who had traditionally been fly-in, fly-out (FIFO) – are now staying and renting for longer. “A lot have decided to live here now as it’s so hard coming and going during state lockdown,” said Brendon Habak of Real Estate Inner City.

“And now a lot of the mining companies and engineering firms are requiring workers to have a fixed address in WA to ensure a steady labour force. So, now they’re going for long-term rentals, so demand is high.”

Hobart is also a capital city benefitting from the perception of being a safe haven from the virus, while Canberra’s rental market remains tight, with so many of its citizens safe in their jobs as public servants.

“Investors are now a growing market segment,” said Dr Powell. “A lot of them are now looking for cash flow, so they will be very interested in yields. “I think a lot of them are now seeing value in Darwin and Perth, but it’ll be interesting to see if the high yields continue after the pandemic.”

In regional areas, the resources areas dominated the yields league table. The most profitable area for property investors was East Pilbara in Western Australia, with a yield of 8.95 per cent, up 4.9 per cent on the year, and a whopping 77.6 per cent over the past five years. Only slightly behind was NSW’s Broken Hill at 8.26 per cent, slightly down 0.6 per cent on last year.

Western Australia’s Port Hedland, our largest iron ore port, delivered yields of 8.2 per cent, 17.3 per cent up on 2020, while Queensland’s Mount Isa reported profits of 8.09 per cent, down 2.7 per cent over the year.

South Australia’s top performer was Leeton-Waikerie on the River Murray at 7.85 per cent, with the metals town Port Pirie close behind at 7.73 per cent.

“The results reflect the resurgence of resources prices, so rentals are in big demand in these areas again,” said Dr Powell.

Meanwhile, in Victoria, the best returns were 7.28 per cent in the Northern Grampians and 6.63 per cent in the Southern Grampians.