Penrith offering yields of 6% and strong demographics to tempt investors
Penrith, on the western outskirts of Sydney, is emerging as an investor hotspot offering rental yields in excess of 6% with local council plans to encourage more high-density residential construction, according to a new report by PRDnationwide research analyst Oded Reuveni-Etzioni.
The report finds that rents have been rising strongly over the past five years with the median rent for a three bedroom house up 44% in the suburbs comprising post code 2750 (Emu Heights, Emu Plains, Jamisontown, Leonay, Penrith, Penrith Plaza and Penrith South) and up 40% in the suburbs in postcode 2747 (Cambridge Gardens, Cambridge Park, Claremont Meadows, Kingswood, Llandilo, Shanes Park, Werrington, Werrington County and Werrington Downs).
Rents for apartments, which make up a smaller but rising share of the market (about 25% of dwellings) have risen even more strongly over this period up by 62% and 59% increase in the 2750 and 2747 postcodes respectively.
Current property listings show yields of 6% and more are achievable.
A three-bedroom townhouse in Kingswood, currently under contract from Greg Robertson of Property Central is priced between $259,000 and $289,000.
Robertson says the property will rent for around $330 per week, equating to yield of between 6.63% and 5.94% at these two price points.
According to PRDnationwide data, units in post code 2047 rent for around $270 per week and for $308 per week in post code 2750.
Houses rent for around $375 per week.
The report finds that capital values have risen moderately over the past year to July 2012, with unit price up 1.9% to $263,000, while the median house price has increased by 3.3% to $377,000.
The results of the 2011 census shows that the Penrith LGA had a median rent of $300 per week, median weekly income of $1,398 and median monthly mortgage repayments of $1,983.
Just over a quarter (26.7%) of Penrith residents rent.
The development of Penrith as a potential investor hotspot is being supported by efforts of the Penrith City Council, which aim to increase Penrith population by allowing higher density construction around transportation hubs.
Penrith is about 50 kilometres west of the Sydney CBD and connected by two CityRail lines. A journey from Penrith to Sydney’s Town Hall station takes just over an hour.
“Ultimately, the local government aims to create 10,000 new jobs in the CBD. Penrith urgently requires an urban consolidation policy to streamline the development of large residential projects around the CBD to support the increase in employment,” says the report.
“Buyer activity has been steadily increasing as investors take advantage of rent returns which in many cases exceed 6%. The last time we had returns this strong was back in the late 1980s. At the peak of the market in 2003 the returns were as low as 3%,” says PRDnationwide Penrith principal Darren Latty.
However, he warns that Penrith "urgently requires an urban consolidation policy to streamline the development of large residential projects around the CBD to support the increase in employment"
Overall, he says the outlook for the region is positive.
“Increased activity, above average rent returns, affordable housing, record low unemployment and low interest rates are all great indicators. These conditions are coupled with nearly nonexistent building activity within the CBD areas. Investors should be getting as excited as we are,” he says.
The report notes that developers often find the area inhibitive for investment, due to low selling prices, the high cost of construction and extended approval periods eroding profit margins.
However, developers now expect firm demand for centrally-located units expected due to an improvement in buyers’ confidence and the recently introduced $!15,000 state government grant for first-home owners building their first homes.