Sydney and Melbourne lead capital gains in Australian property market

Sydney and Melbourne lead capital gains in Australian property market

One of the world’s top property markets continues to offer huge capital growth potential, but there is significant divergence in the Australian housing sector.

Summary:

  • Property investors can find some of the world’s highest capital growth in Sydney and Melbourne
  • Values in Sydney have increased by over 16% in the past 12 months
  • However, unlike the UK, strong capital growth has not been supported by a rise in monthly yield

Australian property investments continue to offer high capital growth.

Like other high-performing markets, such as the UK and the UAE, prices are rising the quickest in city centres.

Figures from CoreLogic RP Data show urban property prices increased by 2% in the second quarter, taking year-on-year returns to 9.8%.

Head of Research at the firm Tim Lawless said February’s and May’s interest rates cuts have helped to push capital gains higher.

He explained: “Growth conditions had been moderating from April last year through to the end of January 2015. With the [Reserve Bank of Australia] cutting the cash rate in February, there was an instant buyer reaction across the Sydney and Melbourne housing markets where auction clearance rates surged back to levels not seen since 2009, [and] capital gains once again accelerated.”

The Sydney market in particular is attracting much property investment attention.

Property in the highly-sought after region is selling in record time, taking just 26 days to complete the average transaction, while investors who exit the market now are earning an annual capital return of 16.2%.

The current house price cycle in Australia has been characterised by a divergence in capital gains across the country’s state capitals.

Since May 2012, Sydney property has increased in value by 43.1% while Melbourne values are up by 25.9%. Every other major city has struggled to achieve double-digit growth, with Perth values rising 12.8%, Brisbane recording growth of 12.4% and Adelaide property increasing by 10.4%.

Unlike UK property, the Australian market is not offering a similar level of growth across yields. Rental returns were outpaced by capital growth and the average gross yield on a capital city unit dropped to 4.4% – the lowest gross apartment yield since 2010.

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