Yield or capital gain: Investors face a stark decision

In a recent post I looked at the relative performance of Melbourne investment property from a rental yields perspective.

Examining yields on a suburb basis provides an interesting metric for investors to consider; the best yields are actually found in the most affordable suburbs.

Of the 10 suburbs with the highest rental yield none have a median house value of more than $350,000.

Dallas and Melton South share an indicative yield of 5.7%, well above the city wide yield of 3.4%.

The other suburbs in the top 10 are Meadow Heights, Coolaroo, Frankston North, Carrum Downs, Melton, Warburton, Hampton Park and Cranbourne West.

At the other end of the spectrum the ten suburbs with the lowest yields, from 1.8 to 2.5% all have median house values in excess of a million dollars, Portsea, Toorak, Balwyn, Kew, Eaglemont, Elsternwick, Canterbury, Balwyn North, Kew East and Caulfield North.

It is interesting to note that while the same rule applies in the unit and apartment market there are a few notable exceptions, such as central Melbourne, which will be examined in a future post.

Robert Larocca is Victorian housing market specialist for RP Data.