- 27 Jan 2025
- By API Magazine
Despite higher interest rates, Australia abounds with locations where rental yields are well above average and capable of covering mortgage expenses.
It’s timely as the first of the big banks moves to reduce fixed interest rates that we look at the effect interest rates have on property investment.
Macquarie Bank is reducing its rates on fixed, one-, two- and three-year terms, which many believe will be the start of other major lenders assessing their fixed rates ahead of the first Reserve Bank of Australia board meeting on 18 February.
One of the great misconceptions of real estate at present is that high interest rates mean it’s pretty much impossible to find positive cashflow investments so it is a deterrent to investors.
It’s not. The RBA lifted interest rates 12 times between May 2022 and November 2023 and investors still bought property.
Yes, it may have reduced their borrowing capacity somewhat and made them a little more cautious about selecting the right property, but it didn’t deter them.
According to the Australian Bureau of Statistics as of November 2024, there were around 212,500 new investment loans in Australia – an 18.8 per cent increase from the previous year.
The ABS says, “Investor activity remains at high levels”.
Despite higher interest rates, Australia abounds with locations where rental yields are well above average, which means there are good possibilities for securing properties that pay their own way.
That old furphy in real estate that many people still believe – that you need to choose between high yields or capital growth but you can’t have both – has never been true and it’s certainly not so right now.
Our capital cities and many of our key regional markets have opportunities for the winning trifecta of real estate:-
- Affordable purchases
- Above-average rental yields
- Great prospects for capital growth
In the past year, there have been multiple locations across Australia where there has been double-digit growth in prices, similar uplift in rents and gross yields well above 6 per cent – and, in many cases, yields above 7 per cent.
Many of these locations have been found in the boom states of South Australia, Western Australia and Queensland – but they can be found almost anywhere in the nation.
One of the reasons for that is that attached dwellings – units, townhouses and apartments – are being seen increasingly as a good alternative.
Units are challenging houses on capital growth, as more and more people opt for their lower prices, lifestyle features, low maintenance factor and the important safety and security aspects in many unit buildings.
It means that there are positive cash flow possibilities in inner-city locations in our biggest cities as well as houses and units in smaller, less expensive, cities and in many regional markets.
Article Q&A
Are property investors still active in Australia?
According to the Australian Bureau of Statistics (ABS) as of November 2024, there were around 212,500 new investment loans in Australia – an 18.8 per cent increase from the previous year. The ABS says, “Investor activity remains at high levels”.
Are fixed rate home loans falling?
Macquarie Bank is reducing its rates on fixed, one-, two- and three-year terms, which many believe will be the start of other major lenders assessing their fixed rates ahead of the first Reserve Bank of Australia board meeting on 18 February 2025.
Where are the most positively geared property investments?
There are positive cash flow possibilities in inner-city locations in our biggest cities as well as houses and units in smaller, less expensive, cities and in many regional markets. Many of these locations have been found in the boom states of South Australia, Western Australia and Queensland – but they can be found almost anywhere in the nation.
