In last month’s update, I provided an overview of the latest developments in the property market in eight capital cities. In this month’s update, I will step back and share a high-level analytical framework we used to identify the cities that offer high capital growth and high rental yield to recommend to our clients (yes, our clients can achieve both capital growth and rental yield simultaneously).
As tertiary research-based property wealth planners, we employ a multifaceted approach that considers various economic, demographic, and real estate market indicators, coupled with up-to-date datasets to enable our clients to make informed decisions.
- Macroeconomic Indicators
The size of the economy is arguably the most important economic indicator to consider from a macroeconomic perspective. Cities with diverse and large economies tend to attract more people and experience increased demand for housing, leading to capital growth. Furthermore, we examine unemployment rate trends, as a low unemployment rate often indicates a healthy job market that stimulates rental demand.
It is also advisable to avoid the cities that rely on a single main industry, such as mining or tourism towns. Instead, we focus on the cities with diverse economies that are backed by multiple industries. This diversity often makes them more resilient during economic downturns, reducing the risk of property market fluctuations.
- Population Trends
Population growth is a critical factor in real estate demand. We focus on cities and regions experiencing consistent population increases. For example, the five largest cities in Australia, including Sydney, Melbourne, Brisbane, Perth, and Adelaide, account for most of the population growth in the country, where the demand for housing is high.
Projected Population Growth
| 2020–21 | 2030–31 | Net increase | Change (%) | |
| Sydney | 5,357,300 | 5,971,400 | 614,100 | 11 |
| Melbourne | 5,171,700 | 6,164,400 | 992,700 | 19 |
| Brisbane | 2,579,100 | 2,943,600 | 364,500 | 14 |
| Perth | 2,126,800 | 2,447,900 | 321,100 | 15 |
| Adelaide | 1,372,700 | 1,488,700 | 116,000 | 8 |
| Canberra | 431,400 | 466,900 | 35,500 | 8 |
| Hobart | 240,800 | 272,100 | 31,300 | 13 |
| Darwin | 142,300 | 144,000 | 1,700 | 1 |
| Total Australia | 25,708,200 | 28,777,100 | 3,068,900 | 12 |
Source: Centre for Population
- Infrastructure Spending
Australia’s population is growing fast increasing by 400,000 – 500,000 people or approximately 2% annually. To cope with demand, the state/territory and federal governments have invested tens of billions of dollars per year in large-scale infrastructure projects. Infrastructure projects such as roads, public transport, schools, and healthcare facilities, stimulate economic activity, creating jobs and boosting local economies. This economic growth can in turn, lead to an increase in property prices as people seek employment opportunities and a higher quality of life in these areas.
It’s worth noting that the impact of infrastructure spending on property prices can vary across regions and the types of projects being implemented. Overall, infrastructure spending remains a key driver in shaping the property market landscape, across both residential and commercial real estate values across the capital cities in Australia.
- Real Estate Market Factors
After analysing all macroeconomic and demographic indicators, we examine key factors within the real estate market:
- Historical Price Growth and Rental Yields: Historical property price trends provide a broad understanding of the property market dynamics. For example, if we identify a city that has experienced a prolonged period of stagnant growth despite other positive economic indicators, there is a high probability that property prices may rise soon.
- Supply and Demand: We assess the balance between housing supply and demand in selected areas. Property prices tend to appreciate faster in regions with limited supply and high demand, particularly those in proximity to city centers.
- Rental Market Analysis: Rental vacancy rates and rental yields are considered as pressure factors influencing property price trends. Low vacancy rates and high rental yields indicate a high-demand market that attracts both property investors and owner-occupiers, driving up the property prices faster than the market average.
Median House Prices 2002 – 2022: Capital Cities
| Sydney | Melbourne | Brisbane | Adelaide | Perth | Hobart | Darwin | Canberra | |
| Median price 2002 | $365,000 | $241,000 | $185,000 | $166,000 | $190,000 | $123,300 | $190,000 | $245,000 |
| Median price 2022 | $1,270,000 | $842,000 | $750,000 | $680,000 | $580,000 | $727,000 | $600,000 | $999,000 |
| Accumulated growth | 348% | 349% | 405% | 410% | 305% | 590% | 316% | 408% |
| Average annual growth | 6.52% | 6.88% | 7.69% | 7.11% | 5.98% | 9.97% | 6.18% | 7.36% |
Source: Property Prices, Australian Bureau of Statistics
In summary, the analytical framework for selecting cities that offer high capital growth and high rental yield in Australia requires an extensive set of economic, demographic, and real estate market indicators. By considering the factors outlined above and conducting thorough research, our research team can identify cities that align with our clients’ investment objectives and maximise the potential returns.