Property investors return to the big city hotspots

Despite better recent price action in regional Australia, property investors are sticking to the same big city suburbs they always have.

Commonwealth Bank executive general manager home buying Michael Baumann.

So much for the “rush to the regions”. Property investors flooding back to the residential sector are returning to the same handful of suburbs in the major cities, despite low rental yields and often weak returns on apartments.

A report from the nation’s biggest home lender, Commonwealth Bank, shows that despite a revival in regions – along with a strong outperformance across Perth – the most popular investment postcodes are still in Sydney and Melbourne.

According to the report “bank data from 2019 found three of the top performing postcodes were still at the top of the list in 2023”.

The most popular postcodes for investors in Sydney were inner-city Sydney 2000, Blacktown, Hills Shire and Liverpool.

In Melbourne, it was Wyndham, Hume, Casey and inner-city Melbourne 3000. The data is based on the number of investment properties funded by the bank within a single area

Only one postcode in 2023 came from outside the two largest cities – this was inner-city Brisbane 4000 – coming in as the sixth most popular postcode for investors nationwide at CBA.

The tables show little change over a three-year stretch that included the pandemic era: Since 2019 inner-city Adelaide 5000 and Sydney’s Fairfield district have fallen out of the top 10, while Sydney’s Blacktown and Brisbane 4000 joined the list.

Despite the clear bias towards big city investments, official data shows regional dwellings are still outpacing metropolitan centres – with a quarterly lift of 1.8 per cent for regional towns against a 1.5 per cent lift in city values for the three months to March 31 this year.

The figures are released just as the residential property market is seeing a strong rebound in investor interest despite elevated interest rates with property investors typically paying rates of around 7 per cent.

At the same time rental yields in major cities are as low as 2 per cent while apartments continue to lag behind houses in terms of total returns. Industry figures for last year showed that 97 per cent of houses have a nominal resale “gain” but the portion drops to 88 per cent for units.

There is now mounting evidence that investors are back in the residential property market after a period of absence in late 2022 and early 2023.

CBA cites Bureau of Statistics data that shows investors underpinned new lending growth over the past year. Investor lending growth at 18.5 per cent outpaced first homebuyer lending at 13.2 per cent while owner-occupiers manage 3.4 per cent.

The average age of a new property investor is now 43 with an average loan size of just over $500,000, indicating that investors were most active in inner-city apartments or medium-priced homes in popular suburbs such as the Hume council area in Melbourne or Marsden Park in Sydney.

According to CBA executive general manager home buying Michael Baumann, “we continue to see the inclination among investors to ‘rentvest’ – that is, buying a property where they can afford and renting where they wish to live”.

Missing from the top tables was the best-performing area nationwide, which is now the city of Perth.

Property research group CoreLogic has reported that Perth continues to lead capital growth performance with values up 20 per cent over the past year.

In contrast annual growth trend in national home values for the 12 months to March is 8.8 per cent.

Originally published as Property investors return to the big city hotspots