Inner City Properties Experiencing Strong Capital Gains
A recent survey for August released in the RP Data CoreLogic Home Value Index shows that properties in capital cities are experiencing their strongest capital gain over the 3 months of winter since 2007. The Index, which looks at recent property sales data as well a range of factors of individual properties including number of bedrooms, land size and location, found that the value for city properties had risen by 5% in Sydney and over 6% in Melbourne.
Adelaide, Brisbane, Canberra and Perth all experienced increases – within a few per cent – and looking at the combined figures, the average values for capital city dwellings rose 4.2%[i].
According to analysts, the increases in value were unlikely to stabilise during the coming months, thanks to a buoyant property investment market, an anticipated record number of listings, high auction rates and the continuing low interest rates. Unsurprisingly, the RP Data figures suggest that people interested in property investment were applying for new home loans at a rate not seen since 2003. They now make up over 38% of the figures for mortgage lending for the past 9 consecutive months (an unprecedented record), with much of their focus on purchasing apartments either in Sydney or Melbourne. While rental yields still remained relatively strong at an average of 3.6%, they have fallen slightly in the major capital cities, with the yields for units in Sydney and Melbourne at 4.5% and 4.2% respectively. With the influx of investment money into the market, analysts suggest that it seems as though property investors are preferring to look towards these strategic long-term capital growth opportunities rather than focus on short term rental yields.
Other findings from the RP Data CoreLogic Home Value Index include:
- Units still outperform houses in terms of rental yield for all the capital cities, with Darwin and Brisbane posting the highest yields for apartments of over 5.4%.
- Property values are almost 11% higher in the capital cities over the past year, with only Sydney and Melbourne recording double digit growth during the same time.
- Values in Sydney and Melbourne have risen by over 50% and 46.1% respectively since 2009.
There is no doubt that these figures on capital growth are fuelling an already buoyant property investment market, with local and overseas investors snapping up brand new developments and off the plan inner city apartments at an ever increasing rate. A recent article in the Sydney Morning Herald’s Domain section on the unprecedented number of enquires and registers of interest for a new Crown Group 220-apartment development in Clarence Street in Sydney highlights the demand and competition among investors for top quality property in prime locations[ii].