Interest rates are expected to remain low for the foreseeable future, and senior economist Andrew Wilson at Domain Group predicts a house price growth of 5 percent to 7 percent with a rental yield of just under 4 percent.
Low interest rates make a bricks-and-mortar investment highly attractive, and with strong rental yields and good capital growth potential, more investors will likely dive into Melbourne’s rising property market.
In 2015, Melbourne’s property market was a sweet spot for investors who reaped the perfect balance between capital growth and rental return.
But, where exactly is that sweet spot? And is it different for rental houses and rental units?
For rental houses, the highest-yielding suburbs were in Melbourne’s south-east and west, and for rental units, the inner city yielded the highest returns. Landlords who owned houses in Officer, Melton, Melton South, Wallan, and Carrum Downs saw rental yields between 5.0% – 6.3%. Landlords who owned units in Albion, Cranbourne, Melbourne, Thomastown, and Dandendong saw yields between 5.4%-6.0%, according to Domain Group data.
In terms of capital growth, landlords with houses in Mount Waverly, Box Hill South, St Kilda East, Balwyn North, and Port Melbourne achieved 1-year growth between 30.8% and 39.7% and yields between 2.0% and 3.6%. Landlords who owned units in Bentleigh, Balwyn, Flemington, Altona, and Chelsea saw 1-year capital growth between 20.2% and 33.7% and yields between 3.2%-4.5%.
When you look at all of the data together and holistically, here are the top five suburbs for investors in Melbourne for both yield and capital growth:
- Keysborough (Houses) and Altona (Units)
Keysborough saw a rental yield of 4.2% and 1-year capital growth of 15.3 % with a median rent of $413 per week. Altona saw a rental yield of 4.0% with 1-year capital growth of 21.5% and median rent per week of $318.
Keysborough is considered a booming, multi-cultural suburb with large, modern family homes on nice estates. With shopping centres and access to plenty of attractions, it’s a well-loved area for established couples and young, independent professionals.
Home to Altona Beach, Altona features an impressive swimming spot with a wide selection of restaurants and cafes nearby. It’s a high demand market with a fairly equal mix of older and established couples and families and maturing and established professionals.
- Frankston (Houses) and Caulfield South (Units)
Frankston saw a 4.3% rental yield and 1-year capital growth of 12.7%, and Caulfield South saw a 4.0% rental yield with 19.0% capital growth.
Frankston is considered a beach-side gemstone, nestled between the city and the sea. Full of architectural glory and breathing room, it’s decorated with family homes, trendy pads, and efficient and chic units. A fairly balanced mix of older and established couples and families and maturing and established professionals call Frankston home. The median weekly asking rent is approximately $340.
Caulfield South is a high demand rental market where singles and families between 40 to 59 years old, on average, have established roots. The median rent for a unit is approximately $380 per week.
- Dandenong North (Houses) and Fitzroy North (Units)
Dandenong North saw a yield of 4.1% with 1-year capital growth of 12.3% and a median rent per week of $340. An average demand market, this suburb has seen new building projects and major improvements to the CBD. Previously considered a low socio economic suburb, it’s an up-and-coming area with a lot of potential.
Fitzroy North saw a yield of 4.3% with 1-year capital growth of 17.2% and median rent per week of $400. With an eclectic and hipster feel, Fitzroy North is close to the city with access to parks, cafes, and good transportation. It’s a high demand area where mainly independent youth and maturing and established independents call home.
- Bonbeach (Houses) and St Kilda East (Units)
Bonbeach saw a yield of 4.0%, 1-year capital growth of 11.3%, and median weekly asking rent of $400. A high demand market, it’s mostly made up of maturing and established independents, older couples and families, and independent youth. Dubbed as a “best kept secret” by locals, it’s a beach side community surrounded by parks and rivers.
St Kilda East saw a yield of 4.1%, 1-year capital growth of 15.3%, and median weekly asking rent of $365. Steeped in Bohemian history, St Kilda is an inner city by the sea. A social scene with a vibrant nightlife and farmer’s markets, it’s made up of terrace houses, deco apartments, historic mansions, and shiny new developments. With average demand, the demographics consist of mostly independent youth and maturing and established independents.
- Mooroolbark (Houses) and Thornbury (Units)
Mooroolbark saw a yield of 4.2%, 10.7% 1-year capital growth, and an average weekly rental price of $388. A peaceful suburb, Mooroolbark is an area that provides great value for money for young couples and families. A high demand market, older couples and families make up the largest percentage of people living in the area, followed closely by established couples and families and maturing couples.
Thornbury saw a yield of 4.5% with 1-year growth of 11.0%, and median weekly asking rent of $320. With a fun northern location, Thornbury offers bike paths, great transportation, cafes, and is a mix of old and new. It’s a high demand market and a popular place for independent people and couples with kids.
Were you surprised to see these suburbs ranking in the top, and do any look like promising investments for you? Let us know in the comments.
Follow our blog for more helpful tips and real estate information. You can also follow us on Facebook.
If you have questions about investment property or would like to speak to a qualified real estate professional, contact us.