Best and worst NSW suburbs for property investors right now

A cheat sheet for property buyers has uncovered where they can get the best and worst returns and capital growth. See how your suburb stacks up.

Property investors have been served up a cheat sheet of where to put their money in the Sydney housing market before an anticipated cut in interest rates later this year.

A Finder examination of every city market measured by its prospects for higher rental returns and capital growth showed most of the best suburbs for investors were in Sydney’s inner south.

The worst markets – considered to be volatile with low prospects for capital growth – were concentrated in the Hawkesbury region, Central Coast and parts of the outer west, the Finder investment index revealed.

It comes as new lending data showed a dramatic shift in buying behaviour in recent months, with many would-be first home buyers becoming investors instead.

Buyer’s agent Tammy Soglanich said vendors were willing to negotiate if were compelled to sell.

The Mozo analysis indicated first-home buyers opting for investment loans grew by a quarter since the ABS first began tracking this type of loan profile in 2019.

About one in 10 first-time buyers in NSW who bought properties this year purchased homes they planned to rent out rather than occupy.

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There has also been an increase in activity from all investor types – not just those buying their first property – with the volume of loans to NSW investors rising 27 per cent over the year to June.

It’s worth noting this rise came after years of reduced investor borrowing since Covid.

“There’s been a significant shift in the number of Aussies choosing to invest in their first property, rather than live in it,” said Mozo personal finance expert Rachel Wastell.

“Soaring property prices and high rates are influencing new buyers’ strategies, and while lightyears away from dominating the first-home buyer market, this small cohort of investors is growing.”

Among the suburbs where investors had the best opportunities to purchase high returning properties were Zetland, Alexandria, Erskineville, Turrella, Beaconsfield, Surry Hills and St Peters.

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These suburbs in Sydney’s inner south and inner west had recorded a significant increase in demand and had some of the fastest population growth, the Finder Investment Index showed.

Other suburbs deemed to be offering similar opportunities for investors were north shore pockets Lane Cove West, Naremburn, Chatswood and North Sydney, along with Blakehurst and Monterey in Sydney’s south.

These suburbs had all recorded a recent uptick in prices and demand over the last year, while the local rental base was expanding.

They also had low unemployment rates and higher household income – considered attractive for landlords.

Suburbs deemed poor choices for house or unit investors were southwest enclaves Carramar and Vineyard, along with isolated pockets of The Central Coast and large parts of Sydney’s rural fringe.

They included Appin, South Windsor, Londonderry and Gorokan, among others.

These areas were usually marked as having lower average household incomes, reduced sales turnover and fewer local amenities – making them harder markets for investors to make money in.

Properties were also taking longer to sell and local prices had often fallen backwards over the past year, according to the Finder index.

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Both units and houses in Erskineville were considered good spots to buy a rental property.

Terry Ryder, the director of research group Hotspotting, said Sydney’s housing market had flipped in recent months and the locations where investors could make money had changed.

Until recently, many of Sydney’s fastest growing suburbs were affordable outer areas, but now it was units in pricier inner suburbs that could record growth, he said.

“Outer-ring areas … have lost momentum and have significant numbers of suburbs classified as declining markets,” he said.

“Overall, the top end is undoubtedly leading the Sydney market while the cheaper areas are struggling to maintain their previously high sales levels.”

Buyer’s agent and Luxe Listings star Tammy Soglanich said investors who wanted “good deals” in the current market needed to target properties where the sellers were motivated.

“A lot of sellers are sitting on their hands testing the market,” she said. “Those with a compelling reason to sell, say if they’ve already bought their next property, are meeting the market.”

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Rich Harvey, the director of PropertyBuyer, one of the country’s biggest buyers’ agencies, said market expectations of an interest rate cut in December or early next year were already spurring investors.

“The savvy investors are trying to get in now,” he said. “There are still opportunities to make money in Sydney but you have to look at which way the tide is going.

“During the start of Covid there was a wave of buying in outer areas but the wave is coming back in. Good quality units within inner suburbs are a standout market at the moment.”

Finder.com.au head of research Graham Cooke said the investment index was designed as a “starting point” for investors to narrow down their locations to buy a home, but warned all prospective buyers should do their own research.

Originally published as Best and worst NSW suburbs for property investors right now