Rental yield is one of the most important factors for investors in Australian real estate. It calculates an investor’s annual rental revenue as a proportion of the property’s value.
It offers vital insights into the prospective return on investment and assists investors in determining whether a specific property is worth acquiring. Rental yields in Australia’s biggest real estate areas, such as Melbourne and Perth, can differ greatly based on the property type and location.
This blog will explore the average rental yields in Melbourne and Perth, highlight the top-performing suburbs for rental yield, and offer insights into how investors can spot high-yielding properties in these cities.
Let’s Get Straight To The Point
Rental yield is a critical metric for property investors. Melbourne offers an average rental yield of 2.95% for houses and 4.38% for units, with the CBD and nearby suburbs like Carlton and Travancore delivering the highest returns for units.
Perth outperforms Melbourne with average yields of 4.5%-5.5%, driven by lower property prices and strong rental demand. Suburbs like Armadale (6.9% for houses) and Orelia (10.0% for units) are top performers.
Perth’s tight rental market, characterised by low vacancy rates, makes it an attractive option for higher, more consistent returns compared to Melbourne.
Average Rental Yield In Melbourne
Melbourne’s expanding population, robust employment market, and booming economy make it one of Australia’s most sought-after destinations for real estate investors.
However, the average rental yield in Melbourne can differ considerably between different property types and locations. According to the latest data, Melbourne’s average gross rental yield is 2.95% for houses and 4.38% for units.
This means that houses in Melbourne generally offer a lower return on investment than units. However, rental yield is not uniform across all suburbs, and some areas within Melbourne are known for offering significantly higher rental yields than others.
Top Suburbs For Rental Yield In Melbourne
Certain suburbs in Melbourne outperform the city’s average rental yield. Focusing on these high-yielding areas is crucial for maximising their rental returns.
Houses:
- Corio: This suburb in the Greater Geelong area offers a strong rental yield of 4.4%, making it one of the best-performing suburbs for houses in Melbourne.
- Norlane: With a yield of 4.3%, Norlane is another suburb offering attractive returns for investors.
- St Albans Park: With a rental yield of 4.2%, this suburb offers good prospects for investors seeking houses that provide a relatively high return.
Units:
- Melbourne CBD: The city centre offers the highest median rental yield in Melbourne, at 7.3%. With a median sale price of $470,000 and a median weekly rent of $600, the Melbourne CBD is a hot spot for investors looking for units with strong rental yields.
- Carlton: With a 7.1% rental yield, Carlton is another suburb offering a high return on investment, driven by its proximity to Melbourne University and thriving student population.
- Travancore: With a rental yield of 6.6%, Travancore also stands out as a strong performer in the unit market. It benefits from its close location to the CBD and public transport links.
Melbourne’s Rental Market In Perspective
Melbourne’s rental market is known for its lower yields than other capital cities like Perth. This can be attributed to higher property prices in Melbourne, which push rental yields down.
However, some suburbs offer competitive rental returns for those looking beyond the high-end areas, especially for unit investors. It’s important to note that Melbourne’s rental market is also subject to fluctuations due to changes in supply and demand.
For instance, the demand for inner-city units and apartments has increased, thanks to students, young professionals, and downsizers seeking affordable living options. However, the supply of new apartments in certain areas can also influence rental yields.
Average Rental Yield In Perth
Perth, the capital of Western Australia, has continuously produced greater rental yields compared to Melbourne. Over the past few years, Perth’s property market has experienced growth, with investors attracted by relatively affordable property prices and strong rental returns.
The average rental yield for houses and apartments in Perth ranges from 4.5% to 5.5%. This is a considerable improvement compared to Melbourne’s average rental yield, making Perth an appealing destination for property investors seeking higher investment returns.
Top Suburbs For Rental Yield In Perth
Similar to Melbourne, certain suburbs in Perth stand out for their high rental yields.
Perth’s strong rental yields can be attributed to various factors, including low vacancy rates, high demand for rental properties, and the city’s economic recovery.
Houses:
- Armadale: This suburb offers an impressive 6.9% rental yield. With a median property price of $370,000 and a median weekly rent of $430, Armadale has become a popular choice for investors seeking affordable properties with strong returns.
- Cannington: Located in Perth’s southern suburbs, Cannington provides an attractive rental yield of 5.7%. Substantial infrastructure developments have contributed to its popularity among renters.
- Balga: Known for its affordability, Balga offers a solid 5.5% rental yield. Its median price is around $320,000, and the median weekly rent is $375. Its proximity to amenities and public transport makes it desirable for tenants.
Units:
- Orelia: Orelia offers a staggering 10.0% rental yield for units. With a median price of $205,000 and a weekly rent of $345, Orelia provides one of the highest rental yields in Perth.
- Rockingham: With a rental yield of 7.0%, Rockingham’s affordable units and strong rental demand make it a popular choice for investors.
- Mandurah: Although slightly further from Perth’s central business district, Mandurah provides a rental yield of 6.3%. Its proximity to the coast and lifestyle appeal make it a popular suburb for tenants, particularly retirees and families.
Perth’s Tight Rental Market
One of the main factors contributing to Perth’s high rental yields is the city’s tight rental market. Vacancy rates in Perth have consistently remained low, often falling below 1%, which means there are fewer available rental properties for tenants.
This high demand for rental properties drives rental prices up, contributing to higher rental yields. As of September 2024, Perth’s median rental price for houses was $650 per week, and for units, it was $600 per week.
These strong rental rates and relatively affordable property prices make Perth a top destination for investors seeking high rental yields.
Conclusion
Investing in property in either Melbourne or Perth can offer lucrative rental returns, but Perth is currently the better option for investors seeking higher rental yields.
While Melbourne’s rental market has certain high-yielding suburbs, particularly for units in the CBD, Perth offers more consistent and higher yields across a broader range of suburbs, especially in areas such as Armadale and Orelia. Investors should conduct thorough research on specific suburbs and property types to ensure they are making an informed decision.
Identifying high-yielding properties in Melbourne or Perth requires understanding local market conditions, property values, and tenant demand. Property investors can maximise their rental yields and secure a profitable investment by focusing on these factors.
Frequently Asked Questions
What Is Rental Yield?
Rental yield is a rental property’s return on investment (ROI). It is typically calculated as the annual rental income expressed as a percentage of the property’s value.
How Do Economic Factors Affect Rental Yields In These Cities?
- In Melbourne: Higher property prices and demand for rentals in the CBD and inner suburbs may lower yields but improve long-term capital growth.
- In Perth: The mining and resource industries significantly influence rental demand, often leading to higher yields during resource booms.
What Factors Impact Rental Yield In A Specific Area?
Key factors include:
- Proximity to transport and amenities.
- Local employment opportunities.
- Demand for rental properties in the area.
How Can I Improve The Rental Yield Of My Property?
- Renovating or modernising key features (kitchen, bathrooms).
- Offering additional amenities (e.g., parking, air conditioning).
- Ensuring competitive but market-aligned rental pricing.
Are Rental Yields Alone Enough To Decide Where To Invest?
No, you should also consider:
- Capital growth potential.
- Vacancy rates in the area.
- Long-term market trends and economic conditions.