Zeroing in on high-yielding suburbs a ‘risky exercise’

Suburbs across five states have achieved double-digit yields, but what else do you know about these suburbs, and how much weight should yields have in your investment decisions?

Figures recently released by CoreLogic have listed NSW suburb Bawley Point as the number one suburb for rental yields nationwide in the 12 months to 31 March 2016.

Located on the state's South Coast, the suburb recorded rental yields of 17.24 per cent, based on a median house price of $500,000.

Director of Sound Property Group Andrew Cull said the risk in isolating the highest-yielding suburbs, like Bawley Point, is that they are often quite remote or small towns.

“Bawley Point is a small coastal town with a population of only 591 people, and at the last census there had been very little population growth over the past few years,” he said.

“Only 10.9 per cent of the homes are rented in the town, which combined with the small population may actually be statistically unreliable data to formulate a solid rental yield.”

According to Mr Cull, there were only 39 sales in Bawley Point over the past year, which may indicate a slow market and one that may be hard to sell in.

“There is also not a lot of infrastructure, employment opportunities and economic activity in the area, all of which are required for a sound investment,” he said.

“I am confident that if you did similar research on the other suburbs on the highest-yield list it would also uncover a lack of diversity in key investment drivers in the majority of them.”

Along with Bawley Point, three other NSW suburbs also achieved double-digit rental yields.

Malua Bay saw yields of 11.82 per cent based on a median house price of $440,000; Broken Hill 11.35 per cent ($110,000); and Nyngan 11.04 ($129,500).

South Australia was also home to four suburbs with double-digit yields, with Quorn achieving yields of 14.15 per cent based on a median house price of $73,500; Coober Pedy 12.63 per cent ($70,000); Port Pirie West 10.69 ($107,000); and Port Augusta 10.4 ($158,000).

Victoria’s Silverleaves and Ouyen saw yields of 13.87 and 10.11 per cent, based on median house prices of $525,000 and $90,000 respectively.

Tasmania’s Zeehan achieved yields of 13.22 per cent ($59,000); Roseberry 12.06 ($62,500); Queenstown 11.20 ($65,000); and Tullah 10.12 ($83,500).

The only other state with suburbs achieving double-digit yields was Queensland.

Collinsville saw yields of 13.08 per cent ($77,500); Dysart 12.08 ($77,500); Deagon 11.86 ($438,000); Mount Morgan 10.4 ($100,000); Cloncurry 10.11 ($177,500); and Blackwater 10.00 ($130,000).

Mr Cull said that as with any investment, you need to analyse many different factors, not just the yield, to make sure the investment will perform well and also to reduce risk.

“Choosing properties for rental yield only can be a risky exercise,” he said.

“A lot of these high-yielding areas may sound good on the surface, but there can be a lot of risk involved because they're a small town, one industry, or not much signs of life in them.”

Zeroing in on high-yielding suburbs a ‘risky exercise’
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