Rental properties in suburban Newcastle are delivering some of the highest investment yields in the nation, new data shows.
Houses in Kotara have delivered a year on year yield of 12.2 per cent in the past 12 months while those in Hamilton South and Adamstown Heights brought their owners yields of 9.5 per cent and 7.8 per cent.
The latest Domain Rental Report shows other hot suburbs included Adamstown Heights (7.8%) , Maryville (6.5%) and Ashtonfield (6.5%).
Median weekly rents for houses in the above suburbs were between $450 and $548.
The yields reflect a trend among individuals who choose to rent in areas that offer a high quality of lifestyle rather than buying a house in less desirable areas.
“Newcastle is among the regional areas that are outperforming capital cities like Sydney where you you wouldn’t be looking at getting a rental yield more than 3.5 per cent,” Domain data scientist Nicola Powell said.
“There’s a mix of things happening in the Hunter. Newcastle is going through a huge transformation, while an areas like Maitland and Lake Macquarie are also experiencing very strong growth.
Lake Macquarie and Port Stephens local government areas had the highest year on year rental yield for houses with an average return of five per cent. They were was followed by Cessnock at 3.7 per cent and Newcastle with 2.4 per cent.
For units Lake Macquarie had the highest average return at 8.5 per cent. It was followed by Newcastle with 7.1 per cent, Cessnock at 3.7 per cent and Port Stephens at 2.3 per cent.
Nick Milligan knows the Newcastle rental market better than most having moved several times in the past decade.
“It can get very competitive; it starts as soon as you go for an inspection,” the 34-year-old who lives in a two bedroom house in Hamilton with his partner Amanda said.
The Hunter’s rental market is in line with a national trend where asking rent prices in most capital cities remained flat over past quarter while prices in regional areas have continued to increase.
It also reflects an upward shift in rental prices across the region, which had been generally stagnant compared to the rest of the state for the past three years.
Real Estate Institute of NSW statistics show the combined vacancy rate for units and houses in Newcastle increased from 1.4 per cent in 2008 to 4.6 per cent in 2015 to 3 per cent in the first quarter of 2018.
Walkom Real Estate director Scott Walkom said he wasn’t surprised at the strong yields that rental properties, in particular houses, were returning in areas like Kotara and Hamilton South.
“There has definitely been a strong demand for good properties in those areas that are close to large shopping centres and good schools,” he said.
“Some families prefer to rent in an area like this than buy a house in an outlying area that doesn’t have the same lifestyle opportunities.”
Meanwhile, the recent investment boom in inner Newcastle had brought an influx of new, high-end apartments onto the rental market.
“It tends to be an older demographic that is moving into the city. They usually don’t have kids and can afford to pay $580 a week for a high quality apartment,” Mr Walkom said.
“There is also a trend where some people are buying an inner city apartment and renting it out for a few years before they move in.”
Mr Milligan said he and his partner had chosen to rent in Hamilton because it afforded them the lifestyle choices they desired rather than attempting to buy a house in an area where they didn’t want to live.
“It’s definitely a lifestyle choice for us,” Mr Milligan, an assistant promoter, said.
“Living near Beaumont Street is important for us. We want to be able to go out and enjoy ourselves rather than having to save every penny so we can pay the mortgage.”
“I’d imagine we will continue to live like this for the foreseeable future.”
Adding to their desire to stay put was the fact that they had not experienced sharp rent increases like many others.
“It’s pretty rare, we have been quite lucky,” he said.
But it is a different story for hundreds of other Hunter households which have been reporting an increase in rental stress in recent years.
A recent Hunter Research Foundation Centre study of housing affordability in the Hunter found the poor affordability of housing had led to a rise in the number of households renting.
The centre estimated that that the number of households in rental stress across all Hunter LGAs rose by 4900, a 24 per cent increase, between 2011 and 2016.
More than 8500 Newcastle households were in rental stress in 2016, a 22 per cent rise on the number in 2011.
In Muswellbrook LGA the number of households in rental stress increased by 37 per cent, by 34 per cent in Cessnock and in Maitland by 45 per cent.