Affordable suburbs lead the way in property investment returns
By
Hotspotting Founder Terry Ryder
A new national analysis conducted by Washington Brown and Hotspotting has unveiled remarkable capital growth in affordable property markets across Australia over the past two years. The report, based on the November 2023 edition of The Pulse, highlights 50 high-yield locations that have shown substantial capital growth potential, with some suburbs experiencing price increases of up to 88 per cent.
Terry Ryder, Founder of Hotspotting, painted a vivid picture of the lucrative outcomes for investors. “Imagine this scenario as an investor – you paid less than $300,000 for a house in 2023 and you achieved a rental yield of close to eight per cent from day one,” he explained. “Then two years later, the property has grown 85 per cent in value. You’ve made a capital gain of $250,000 and own a positive-cash flow property.”
The data indicates that investors who purchased properties at the median house price in any of the 50 locations highlighted in the report two years ago have likely seen significant growth in values, ranging from 30 per cent to almost 90 per cent.
Leading the charge is Armadale in Greater Perth, which has been identified as the top investment location for returns over the past two years. Washington Brown CEO Tyron Hyde noted the impressive surge in the suburb’s median house price, which jumped from $325,000 to $610,000, marking an 88 per cent increase and a $285,000 capital gain. “Two years ago, we noted there was an uplift in demand from first home buyers and investors as well as 450-plus property sales in the past year in Armadale,” Mr Hyde said. “We also indicated that Armadale provided affordable homes near big jobs zones and good transport links and that it was the fourth fastest growing LGA in Western Australia.”
Close behind Armadale is Withers in Bunbury, which saw an 85 per cent increase in median house prices, climbing from $295,000 to $545,000 over the two-year period. Regional Queensland also made a strong showing, with Berserker in Rockhampton and Aitkenvale in Townsville both recording a 69 per cent rise, while Lowood in Greater Brisbane saw a 67 per cent increase.
“The town of Lowood near Gatton in the Lockyer Valley grew from $405,000 to $634,000, which resulted in a $229,000 capital gain over the two-year period,” Mr Hyde commented. “We previously advised that Lowood was an affordable lifestyle area near Ipswich with proximity to one of Australia’s largest RAAF bases, while Gatton offered a university campus, and a strong agricultural economy halfway between Ipswich and Toowoomba.”
The analysis underscores the combined effect of affordability, yield, and depreciation in generating standout results for investors. “These markets were originally selected for their strong rental returns and underlying fundamentals, but what we’ve seen since is extraordinary capital growth as well,” Mr Ryder said. “The message for investors from this analysis proves yet again that you don’t need to buy in expensive suburbs to achieve exceptional results. The best growth stories are happening in the most affordable parts of Australia.”
Depreciation has emerged as a critical factor in investor outcomes, particularly as property prices have risen in most locations over the past two years. Mr Hyde explained, “Depreciation is no longer a secondary benefit because it’s doing real work in supporting cash flow. As prices rise and yields reduce, the depreciation factor becomes more important.”
In particular, northern Australian markets such as Darwin and Cairns are benefiting from higher construction costs, translating into stronger depreciation outcomes. “Depreciation is based on what it costs to build, not what a property sells for. In places like Darwin and Cairns, construction costs are structurally higher – and that flows directly into higher depreciation deductions,” Mr Hyde noted. “Buildings in these regions typically require cyclone-rated structures, heavier use of concrete and steel, and incur higher freight and labour costs, so, as a result, a larger proportion of the purchase price is attributable to the building rather than the land.”
The Pulse report’s selection of locations is based on a comprehensive set of criteria, ensuring that the highlighted areas possess strong economic foundations, substantial market size, and growth potential, among other factors.