The latest housing data indicates that while capital values may be slipping in mining towns, their rental yields are still among the highest in the nation.
CoreLogic RP Data figures for April 2015 lists the West Australian mining town of Kambalda West as having a 10.4 per cent average rental yield on houses – the highest in the state, but a figure well down on those achieved by the eastern states.
Mossy Point on the New South Wales South Coast was the highest-yielding suburb in Australia, with an average yield of 18.78 per cent for houses.
Alan Fox of buyer’s agency Propertunity recently analysed the high-yielding coastal suburb of Killcare, stating that expensive holiday unit rentals were likely skewing figures for a region that largely consisted of older owner occupiers.
“There are holiday homes in Killcare that are advertised for rents of a minimum $2,000 per week to $4,000 per week, and I strongly suspect these advertised rentals are skewing the rental yield figures,” Mr Fox said.
In another indication of the significant rental yields still being experienced in mining towns, Broken Hill came in as the 10th highest-yielding suburb in New South Wales with an average rental yield of 10.87 per cent for houses.
The mining town, which borders South Australia and has been largely sheltered from the recent dip in iron ore stock prices, was recently ranked at number one in a CoreLogic RP Data report titled Top 10 most affordable regional suburbs for houses.
Jim Hickey, principal of LJ Hooker Broken Hill, said that while the sales market was still struggling to recover from the significant hit inflicted by the Global Financial Crisis, rental demand had remained strong.
New gold-mining projects and an existing solar farm project were sustaining demand for accommodation in the region from transient workers who did not want to risk purchasing a property, according to Mr Hickey.
“The rental market is always strong in Broken Hill and always has been,” he said. “Because when there’s a downturn in the economy people prefer to rent, especially in a mining town, or when the economy is strong the rentals are still strong anyway.”
While the figures were largely dominated by suburbs outside each state’s capital, strong metropolitan markets included houses in the outer Darwin suburb of Zuccoli (14.55 per cent), Nulsen in Perth (8.56 per cent) and Elizabeth Park in outer Adelaide (8.8 per cent).
Peter Koulizos, academic and property author, said the low cost of buying units in Elizabeth Park was probably contributing to the high yield in a rental market dominated by public housing stock.
He warned investors tempted by the low entry point to the market to prepare for an increase in vacancy rates and reduction in rental prices as workers displaced by the closure of the Holden factory in neighbouring Elizabeth seek work in other parts of Adelaide.
“There’ll be an issue in the not-too-distant future once Holden shuts, because a significant proportion of people work at Holden or related places of employment,” Mr Koulizos said. “Be prepared for a slow period so far as house price growth and rental is concerned.”
However, the joint urban regeneration plan between the City of Playford and the South Australian Government, which involves establishing Elizabeth as the ‘CBD of the North’, is likely to contribute to a longer-term market improvement, according to Mr Koulizos.
Overall, he advised investors considering Adelaide to buy closer to the CBD in order to enable better capital growth and a similar rental yield.
“Rather than buying a house in Elizabeth Park for, say, $250,000, you could buy a unit in an inner-city suburb for the same price and get a similar yield. It’s location that drives capital growth and the most important thing there is proximity to the city.”
In particular, investors should focus on suburbs combining proximity to city and the beaches in order to capitalise on a broad range of renter demand.
“If you can buy in a suburb in between the city and the sea, and there are plenty of those in the inner-west of Adelaide, I think you’re better off.”