Total returns are picking-up outside of Sydney and Melbourne

Total returns are picking-up outside of Sydney and Melbourne

Sydney & Melbourne have seen much stronger total returns than other capital cities over recent years. Recent data indicates returns in Hobart & Canberra are closing in on Sydney & Melbourne thanks to higher yields & accelerating capital growth.

The CoreLogic Home Value Index was released last week and it showed that combined capital city home values rose by 7.5% over the year to October 2016.  The most interesting recent development has been the accelerating annual growth trend evident within Sydney and Melbourne.  While the change in values is important, it only tells part of the story with the total return also an important figure to focus on.

Annual change in capital city home values,
to October 2016

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While the home value index looks at changes in values, the CoreLogic Accumulation Index factors in the change in values over the year along with rental returns. As a result, the Index provides an indication of the total returns from residential property.

When you factor in gross rental returns, the total returns from residential property are actually positive across all capital cities.  This is despite values declining in both Perth and Darwin.  The total returns index also shows that Sydney and Melbourne are not quite so far out in front.  The strong value growth in these two cities is offset by record low yields.  Meanwhile, more moderate but accelerating value growth in Hobart and Canberra along with higher rental returns are resulting in total returns in these two cities closing the gap with Sydney and Melbourne.

Total returns from residential property,
12 months to October 2016

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Looking at cumulative value growth over the five years to October 2016, Sydney and Melbourne stand head and shoulders above all other capital cities.   Over the five years to October 2016 Sydney home values have increased by 62.3% and Melbourne home values are 38.1% higher.  No other capital city has recorded cumulative growth of at least 20% over the past five years.

Total change in capital city home values,
5 years to October 2016

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Total returns over the past five years indicate the property asset class has performed much better than if you just look at headline value growth.  Although Sydney and Melbourne have still recorded the strongest total returns over the past five years, returns in the other capital cities are much stronger once you factor in the rental return performance.

Total returns from residential property,
five year to October 2016

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The strong value growth in Sydney and Melbourne over recent years has been a key driver of demand from the investment segment.  Over the past year, total returns have begun to accelerate in Hobart and Canberra.  Although value growth in these two cities has not been as strong as in Sydney and Melbourne, the superior rental returns are resulting in stronger total returns. 

With Sydney and Melbourne having seen much greater value growth than all other capital cities over recent years and rental returns pushing to lower level, the total returns on offer in Hobart and Canberra are likely to remain attractive for investors.  Particularly those investors looking for opportunities outside of the two largest capital cities.


About CoreLogic

CoreLogic Australia is a wholly owned subsidiary of CoreLogic (NYSE: CLGX), which is the largest property data and analytics company in the world. CoreLogic provides property information, analytics and services across Australia, New Zealand and Asia, and recently expanded its service offering through the purchase of project activity and building cost information provider Cordell. With Australia’s most comprehensive property databases, the company’s combined data offering is derived from public, contributory and proprietary sources and includes over 4.4 billion decision points spanning over three decades of collection, providing detailed coverage of property and other encumbrances such as tenancy, location, hazard risk and related performance information.

With over 20,000 customers and 150,000 end users, CoreLogic is the leading provider of property data, analytics and related services to consumers, investors, real estate, mortgage, finance, banking, building services, insurance, developers, wealth management and government. CoreLogic delivers value to clients through unique data, analytics, workflow technology, advisory and geo spatial services. Clients rely on CoreLogic to help identify and manage growth opportunities, improve performance and mitigate risk. CoreLogic employs over 650 people across Australia and in New Zealand. For more information call 1300 734 318 or visit www.corelogic.com.au.

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