These three Aussie capitals tick investment boxes, so where is everyone?

Hobart, Darwin and Canberra have been left behind in the latest property price boom but are still kicking investor goals, especially on affordability.

While it is Perth, Adelaide and Brisbane that have garnered all the attention of late due to stellar capital growth, investors focused on buying low and selling high are being urged to look to Australia’s three small capital cities as other markets near or reach a peak.

Darwin’s nation-leading rental yields

Darwin is the most affordable city in Australia with a median dwelling value of $502,120, about half the price of Sydney ($1,156,020), and $340,000 cheaper than the Brisbane median of $843,231.

Though trailing all capitals except Hobart in monthly dwelling value growth at 0.3 per cent, Darwin’s total return to the start of this month was 10.3 per cent, on par with Sydney’s 10.6 per cent and double Melbourne’s 5.5 per cent. Darwin also doubled Melbourne’s 1.8 per cent change in annual dwelling value at 3.5 per cent.

The Top End capital’s housing values haven’t peaked since May 2014, with values falling in that time 5.3 per cent yet in the five year cycle from 2019 (Covid) to May 2024, it saw 26.2 per cent growth adding $104,242 to values.

Rental yields are another feather in Darwin’s property cap, as the consistently best performer of all capitals. It is currently averaging 6.5 per cent, compared to Sydney (3.1 per cent), Brisbane (3.8 per cent) and Perth (4.5 per cent).

Simon Connelly, Sales Agent, First National Real Estate – O’Donoghues, said he doesn’t know why southerners aren’t investing in Darwin in their droves.

“We have one of the highest rental yields in the nation and have done for decades. We have always averaged 6 per cent and above,” Mr Connelly said.

“I recently listed a unit that’s been getting $950 a week, it’s going on the market for offers over $525,000, it’s about 9.5 per cent return for an investor, whereas in Sydney, Brisbane and Melbourne you’d be lucky to get 4 per cent.

“There’s many examples like that - I’ve recently sold a $425,000, three-bedroom, two-bathroom apartment near our Larrakeyah-based office, which will probably lease for $650 a week. The returns are outstanding.”

The median value for units is $363,012 and some enjoy water views.

CoreLogic ranked the top three Darwin suburbs for highest 12-month dwelling value growth as Litchfield, up 5.4 per cent to a median of $652,455, Darwin City, 4.6 per cent, $485,816, and Palmerston, 2.5 per cent at $484,963.

“Because of the cost of construction up here the depreciation on properties is quite good too, and there’s no land tax in the Northern Territory, which is a significant issue in other states,” Mr Connelly said.

Hobart’s property cycle could turn with interest rates

Hobart has the lowest of all capitals’ monthly and annual change in values to 31 May at 0.5 per cent and 0.1 per cent, easily overshadowed by Perth’s annual gain of 22 per cent and 2 per cent in May alone.

However, in the five year cycle from 2019 to May 2024 values grew 28.4 per cent, adding $144,723 to property values, and proving the market does possess the potential for rapid growth.

The current dwelling median is $655,170, houses $697,770 and units, $523,843.

Suburbs with the highest 12-month growth are Sorell-Dodges at 4.6 per cent and a median of $632,145, followed by Brighton (1.5 per cent, $529,694), Hobart North West (0.5 per cent, $539,397), South and West (0.4 per cent, $772,051), and Hobart Inner (0.1 per cent, $863,995).

Hobart shines as the second most affordable city in Australia and that’s a good time to invest, says Garry Quan, Principal, McGrath Hobart Real Estate Agency.

“The market’s probably going to get a bit stronger from here but when, who knows, because interest rates will play a big part of that and we’d probably need to see a few drops before the market responds and starts to move,” Mr Quan said.

“Our rental prices are still quite high though they’ve come down a bit, and my feeling is that as the sales market gets stronger, more investors coming to the market will demand a higher return on investment and it will most likely go higher depending on demand and supply.

“Right now, we’re not seeing a lot of pure 100 per cent investors, though some have plans to move down here, so they lock in the prices now if they’re smart people - before prices move, because they will - and rent it out for a couple of years before they move here.”

Mr Quan feels mum and dad investors are led by property gurus and the media, following their focus on cities like Perth and Brisbane, where prices are peaking.

“When those markets become too heated or the prices too high, that’s when investors looking for medium to long term growth will reconsider Hobart, where the market is pretty low now.”

“It’s just a cycle and Hobart’s had its turn when prices were very, very high, and we’ll have our turn again,” he said.

Canberra’s bigger centres should be investor focus

It’s exactly these kinds of statistics and singling out of suburbs where Mark Larmer, Principal, Suburbia Real Estate, says data fails to tell the whole story.

This applies particularly in the recent bumping of Brisbane ahead of Canberra as the second most expensive city in Australia, by a margin of $3,131.

“It’s a small amount and we’re talking about a vastly different size of stock there, the volume of stock that would go into that pool for Brisbane as opposed to ours, can skew things a lot,” Mr Larmer said.

“I have lots of discussions with people who say things like ‘the median price has dropped 5 per cent’, but you could have a unit development property sell in a short space of time, over a quarter for example, which can reduce the median price dramatically - it’s very short term.”

Consequently, even recommending a suburb for good investment in Canberra is problematic, Mr Larmer said, as it’s a 40 minute commute from one side of the city to the next and owner-occupiers in particular are more flexible about where to live.

“For example, I couldn’t say, buy in Turner, because in Turner some of the properties are going to be well priced, and some are going to be astronomically badly priced so even if it’s a good product it’s not right at the wrong price.

“In Canberra, it’s more the product and supply and demand equilibrium that’s driving values and rental returns and Canberra’s unusual because we’ve got major centres like Belconnen Centre, Canberra City, a Woden Centre and a Tuggeranong Centre and the closer you can buy near the city or one of those centres, the more sought after the properties,” Mr Larmer said.

The top areas identified by CoreLogic for 12-month growth are South Canberra, up 4.1 percent to a median of $896,291, Weston Creek (3.8 percent, $912,478), Tuggeranong (3.7 per cent, $840,991, North Canberra (2.1 per cent, $699,909) and Belconnen (1.4 per cent, $816,315).

Gross rental yields on units are 5.1 per cent, ahead of houses at 3.7 per cent, and the median unit value is $583,587, with a year to date price growth of 0.1 per cent.

“If lots of people are trying to get into one-bedroom units that’s going to push the overall rent down.

“When you’re buying a unit close to the city though, you’re likely to fully furnish it, and get Airbnb rentals and those are going to be substantially better than returns you get on a three-bedroom house in the suburbs,” Larmer said.

Potential, yields and fair weather investors

Owner-occupiers are the predominate buyers across Hobart, Canberra and Darwin.

Mr Larmer said in Canberra properties are taking longer to sell.

“I’m seeing more properties withdrawn from sale than I’ve seen for a while, but I think that’s a function of both agents and owners wrongly overinflating the price in Canberra, thinking that what sold a year ago is an indicator of what they’re going to get today.”

Mr Connelly said first home buyers are also active in Darwin.

“For investors though, where else can you buy a property that’s had no growth for 10 years, which is a great opportunity to gain growth.

“We’ve got an average rental return of 6 per cent and above, and we’re a fraction of the price of properties down south, so it’s a no-brainer.”

Mr Quan said stock is tight in Hobart and owner occupiers are holding off selling because they need to have somewhere to move to and don’t want to be homeless in between.

“It’s also winter and Hobart’s very seasonal.

“Things will get moving as the weather changes, especially in the December, January, February period.”