Perth, with its strong immigration growth and high livability score, is a landlord’s market. The influx of new migrants has increased demand for rental properties and pushed prices. Landlords are taking advantage of this trend and have seen an unprecedented rise in returns.
Far from being a homogenous market, there is significant variation in the rental market in Perth. While some areas have seen significant price hikes, there are still relatively affordable suburban properties, such as in Wanneroo and Rockingham.
Investors seeking to take advantage of Perth’s rental market should be aware of some potential risks, such as seasonal variations in demand and the availability of quality tenants. Landlords should also be prepared to invest in marketing and tenant screening to ensure they can attract and retain quality tenants.
Zaki Ameer of DDP Property says that “ But even with these risks, Perth’s high rental yields make it one of the best places for investment in the country. ” We touch more on this below.
What Is Rental Yield?
Rental yield is the return on your investment property based on the annual rent divided by the purchase price. A higher yield means more profit for your investment.
Rental Yields in Perth
As of January 28, 2023, there has been a 5.4% increment in house rents and a 4.7% on unit rent. Meanwhile, the 12-month change is 13.3% for houses and 17.9% for units.
Besides rent, the asking prices for properties have also increased significantly in the past 12 months, increasing by 14.2% on houses and 7.3% on apartments.
Why Are Rental Yields High in Perth?
The figures above indicate that Perth’s rental market is currently healthy, with high yields encouraging investors to invest in the city. It can be attributed to a number of factors discussed below.
AAA Credit Rating
The AAA credit rating is the highest credit rating that a company, issuer of debt, or financial obligation can receive. Western Australia got its AAA credit rating after nine years due to its budgetary outperformance in comparison to global and national peers.
A high rating indicates safety for investors. It also allows Perth to borrow funds at lower interest rates, thus encouraging more investment in the city.
Strong Economic Growth
The steady economic growth in Western Australia has encouraged more people to move to the state. Domestic and international migration have further increased the demand for rental properties in Perth, driving up rental yields.
In the September quarter of 2022, the year-on-year growth in WA’s wage price index was recorded at 3.3%, the highest since June 2013. It’s also forecasted that WA’s economy will grow by 2023 due to government infrastructure projects and the opening of new resource projects.
The domestic economy of WA has grown by 5.7%, twice the growth of the rest of Australia. It’s also important to note that WA is the only state in Australia that recorded domestic economic growth between 2019 to 2021, indicating the state’s resilience even when faced with challenging global economic conditions.
The region’s exports were recorded at $223 billion between 2020 and 2021. These exports accounted for more than half of Australia’s exports during this time.
Growth of the Educational Sector
Another reason for Perth’s high rental yields is the growth of its educational sector.
There has been a significant influx of students in WA due to government initiatives, such as redirecting funding toward international student recruitment strategies.
Curtin University and Edith Cowan University will soon make their campuses in Perth, attracting thousands of students and faculty members who will all need a place to stay. Many workers and students will look for rentals in the city, driving up rental yields.
Promising Employment Opportunities
The Perth City Deal alone is expected to create thousands of ongoing and construction jobs. For example, the university campuses will create about 1,000 ongoing jobs and 4,100 construction jobs. The deal will also bring Perth a $1.5 billion economic stimulus, increasing its attraction for investors.
Most of the jobs in Perth are in the Technical, Professional, and Scientific sector, followed by health care and social assistance, mining, public administration and safety, accommodation and food services, financial and insurance services, construction, retail trade, and education.
Why High Rental Yields Present an Investment Opportunity?
It’s quite simple. The more livable a city is, the more its population will grow. With more people moving to the city, there will be a higher demand for housing and rentals.
If the supply does not meet the demand, the market will get ‘tight.’ That means rental prices will go up, and rental yields will also increase. High rental yields are great for investors because they earn more money with the same amount of property.
Perth already had a tight rental market even when other capital cities experienced a downturn. It was mainly due to the city’s smart response to the Covid-19 crisis. The city is actively investing in creating more employment opportunities and attracting international students, and this will only continue to push rental yields up even further.
Perth Suburbs That Require More Property Investors
If you have budgetary constraints or are a novice investor, it’s best to opt for unsaturated markets where you can find lower prices, higher capital growth, and higher rental yields. These are the suburbs that require more attention from investors in 2022:
With the median rent price at $500 per week, Southern River has a 4.4% rental yield. The median sale price of a house in the suburb is $591,500.
Are you on the hunt for a suburb with a lower median sale price but a higher rental yield? Swan view might be your alley, with a 5.2% rental yield and a median sale price of $410,000.
A property in Leeming gives you a high median rent price of $600 per week. But you should be prepared to spend around $700,000 to $800,000 on a dwelling.
Some other unsaturated suburbs with high growth potential include North Beach, Manning, Hilbert, Madora Bay, and Caversham. Having said that, Perth offers numerous suburbs that can make for a great investment opportunity. However, it’s always wise to conduct research and run some numbers before investing in the city.