INVESTORS with inner-city residential properties are enjoying strong rental returns in the year to September as vacancy rates remain tight.
Research by PRD nationwide of eight postcodes within the inner city show which of these unit markets has performed best in the past two years.
Analyst Robert Matta says the top of the list is 4169, which encompasses Kangaroo Point and East Brisbane.
He says those suburbs have consistently recorded positive growth in the past two years on a quarterly basis.
The 4101 postcode – Highgate Hill, South Brisbane and West End – was also a strong performer across all unit markets.
And Mr Matta believes these areas will continue to experience stable rental growth.
His research found the inner-north region was one of the fastest-growing rental hotspots, with two-bedroom units in that area dominating rental growth in the year to September.
New Farm, Kangaroo Point and East Brisbane had an increase in rents of 12.8 per cent and 14.3 per cent, respectively.
Inner-south suburbs including Woolloongabba, Highgate Hill, South Brisbane, South Bank, West End and Dutton Park dominated rental growth in the one-bedroom unit market.
Those regions – with postcodes 4101, 4102 and 4169 – recorded double-digit increases.
According to the latest Real Estate Institute of Queensland vacancy rate survey, vacancy rates remain tight across Queensland, not just in the inner suburbs.
It found most major regions had vacancy rates of 2.5 per cent or less in September.
A vacancy rate of 3 per cent is considered stable.
REIQ CEO Anton Kardash says analysis of Australian Bureau of Statistics data shows there were about 3900 dwellings financed to Queensland investors in August.
This is up 19 per cent on the same time last year but is still below the historical data of 5000 dwellings financed a month.
A lack of investors was leading to vacancy rates tightening.
The survey found the vacancy rate for Brisbane at the end of September was 1.7 per cent, down from 2.1 per cent three months before.
Inner-Brisbane’s vacancy rate was 1.5 per cent, down from 1.6 per cent.
Mr Matta says vacancies are tight and rental growth strong in inner-city suburbs because the demand is highest there.
His research focused on the unit market because the most supply was to be found within a 5km radius of the CBD.
And he says units definitely offer investors more affordable entry prices within those areas.
“In terms of, I suppose, gross yields the unit market probably is a better investment. However, when you start looking into body corporate, especially for new unit projects, they are a significant key deterrent from an investor’s perspective,” Mr Matta says.
Mr Matta says these fees can erode gross yields, particularly on some larger developments that have all the inclusions such as pools, lifts, roof-top gardens or other outdoor areas.
Mr Matta says from an investor’s perspective, buying around suburbs with a lot of amenity would make it easier to get a tenant.
“It is all about demand, so it alleviates that vacancy risk,” he says.
Mr Matta says inner-city suburbs that are restricted in terms of future development potential can also be appealing places to invest, as there will not be many new developments with which to compete.
“In terms of supply not meeting up with demand, it puts pressure on vacancy rates which in turn (leads to) better rental price growth prospects and that ultimately feeds into what everyone is hoping for – asset appreciation,” he says.