Rental Yields in Sydney's Eastern Suburbs: What Investors Need To Know

Investors looking to buy in Sydney’s east know this is one of the strongest real estate markets in Australia. So how much can you expect when it comes to rental yields?

With investors still focused on Sydney’s east in 2017, we’re meeting plenty of buyers looking to find suburbs with the highest possible rental yields. Let’s take a closer look at how to accurately calculate rental yields for your property, and the average yields you can expect when investing in this area.

Understanding net vs. gross rental yield

A key factor to keep in mind when calculating possible rental returns is the difference between net and gross yield. Remember that any generic set of figures claiming to show rental yields for a particular suburb will only include gross estimates – that is, the percentage of the property’s total value covered by rental payments in a given year. For example, we know a $1.5 million property in Woollahra with an annual rental income of $52,000 will have a gross rental yield of around 3.5%.

In reality, that gross yield figure will be reduced when we factor in all the costs associated with owning an investment property, such as:

  • vacancy rates and advertising costs
  • property management fees
  • repairs and maintenance
  • insurance
  • rates
  • land tax

Once all these annual costs are factored in, you’re left with net yield. This is a much more accurate estimate of the annual rental return you can expect.

Average rental yields in Sydney’s eastern suburbs

According to CoreLogic figures, 2016 ended with average gross rental yields across Sydney at around 3.1%. This estimate matches up with figures for the eastern suburbs from SQM Research, which put gross yields for houses at just above 3% during Q1 this year.

If we drill down into CoreLogic’s figures to look at approximate gross yields in some of the east’s key markets, we start to see which suburbs are higher performers:

  • 2-3% gross yield: Bondi, Bondi Junction, Rose Bay, Paddington, Surry Hills,
  • 2–2.5% gross yield: Kingsford, Kensington, Coogee, Woollahra, Vaucluse, Clovelly, Darlinghurst, Marrickville, Randwick

Clearly, more expensive areas don’t necessarily bring in higher rental yields. In fact, higher prices can end up pushing rental yields down as investors have a smaller margin between property cost and annual rental return.

Two suburbs to watch: Kingsford and Kensington

It’s worth noting that yields in suburbs with comparatively less prestige, like Kingsford and Kensington, are competing with blue-chip areas like Woollahra and Vaucluse. Kingsford and Kensington are becoming more sought-after by renters who want proximity to the city along with easy access to amenities like UNSW and the hospital complex.

Factors that could change average rental yields

A major factor that will have an impact on rental yields across the east is the coming introduction of light rail, scheduled for completion in 2019. In fact, we’re already starting to see some impact in terms of property prices and rents. Investors who buy in early will be best placed to take advantage of the change.

The other key theme in Sydney's eastern suburbs is development, with some investors concerned that the recent wave of development could result in oversupply, driving sale prices and rental yields down overall. But with supply still a major concern for the vast majority of eastern suburbs buyers, and little relief in sight, we’re not expecting these new builds to have a significant impact on average rental yields.

Download our 2018/2019
Eastern Suburbs Market Report

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