Are Highest Yields risky !!!
The risks of investing in mining towns and other locations with economies dominated by one sector.
Some of Australia’s regional markets are giving investors better returns than their metropolitan counterparts, but investors need to be careful to avoid buying in high-risk locations.
Analysis by MCG Quantity Surveyors shows that the more affordable regional markets have plenty more to offer than inner city suburbs.
MCG Managing Director, Mike Mortlock, says the Pilbara in Western Australia has house yields of 9.85% and unit yields of 13.12% which are being driven by strong rental demand caused by the growing mining sector.
Another solid performer is the Campaspe Shire, which covers the area between Bendigo and Shepparton in Victoria. Rental yields for houses are at 6.23% and units are 11.28%.
In Queensland, the Outback South and Bowen Basin regions have rental yields for houses of 9.07% and units of 8.88%.
Mortlock says the one thing the strongest performing markets have in common is that they are areas that are underpinned by strong activity in the mining and agriculture sectors.
Although properties are relatively affordable and yields are good in these locations, Mortlock does warn there are risks when a market is heavily influenced by one industry sector.
He says capital growth is not always as strong as it is in locations closer to capital cities.
“(It’s) important to balance the attraction of high yields with the potential for capital growth,” he says.
He says the research underscores the importance of a diversified investment strategy that considers both regional and metropolitan markets.