CoreLogic have recently reported that Cairns suburbs have been included in 4 out of 5, and 6 out of 10 of the country’s top yielding suburbs for Residential Units. The suburbs of Woree, Bungalow, Manunda and Westcourt were Australia’s top performers with regards to rental returns in data to November 2015. Yields achieved were around 8.0% to 8.5% on a gross basis (source: PropertyValue by CoreLogic – Feb 2016).
The yields achieved on Residential Units in Cairns suburbs appear attractive in relation to those yields experienced for residential units in the major cities. In comparison published gross yields for units in Brisbane City is 5.9%; Sydney is 4.3%; and Melbourne is 5.4%. (Source: Realestate.com.au – 12 months ending 31/12/2015).
Cairns Suburbs Unit Data
Data compiled from Property Data Solutions; RP Data; & Realestate.com.au shows steady increases in median values for most of the Cairns suburbs between the 2014 and 2015 calendar years, with those listed suburbs with a moderate to high level of unit sales averaging a 3.42% median price increase over the 2015 calendar year.
The current published median rental value for the suburb of Woree reflects a yield of 10.04% on the 2015 median unit sale price for the suburb. The suburbs of Bungalow, Manoora and Manunda all show strong gross returns on investment based on published median weekly rental for the suburb. Actual returns on specific investments vary depending upon their individual sale prices and gross rental value.
All but one of the suburbs listed below show a gross rental yield of over 5.0%; the suburb of Westcourt traditionally experiences strong rental yields and had a high listed yield as at November 2015. A lower skewed median weekly rental for Westcourt is considered the cause of the relatively low reflective performance shown in the data set below.
In summary, the Cairns suburbs listed above show good returns on a gross basis and affordable median prices. Despite the strong Median Price and Rental Yield Numbers, sales volumes reduced in most of the above mentioned Cairns suburbs over the 2015 calendar year. As at the end of 2015, Domain.com.au list the Cairns LGA median unit price as $228,000 with a long term trend of 2.2%.
What the Numbers don’t Tell
There are many reasons as to the favourable gross yields being achieved for unit sales in the Cairns region. These include but are not limited to:
• A higher proportion of units in Cairns are holiday let / serviced apartment style units which tend to have a more limited purchaser market and usually experience higher returns on investment.
• Many of the traditional suburbs contain older style units which incur higher risk of costs of upkeep than those more modern units and therefore attract higher returns.
• Prices have fallen in many of the Cairns localities in recent years and the median unit price in some suburbs is currently less than it was in 2007; rents have not always decreased in line with capital values and therefore gross yields have been pushed up.
• The rental market has strengthened in the locality in the last 2-3 years with moderate rental value increases.
In addition to the above, the most significant contributing factor to gross yields achieved on Cairns Units is typically the high level of outgoings attributable to unit ownership in the locality. Cairns has a climate which incurs a relatively high level of deterioration of buildings and fit-out due to the humidity and is a high risk area for cyclone and flood activity. It has been well documented that Insurance premiums on residential properties in the region are some of the highest in the country. As such, Body Corporate Rates which typically include Building Insurance Premiums are often significant. Units in resort style groups (which there are many of in the locality) often have high levels of common amenities including swimming pools, tennis courts, large areas of common grounds etc. The upkeep on these common amenities is often costly which further drives up Body Corporate Rates. In some large Resort Unit Groups, it is not uncommon for 2 or 3 bedroom units to incur Body Corporate Fees well in excess of $10,000 per annum. Some small 2 bedroom units in older basic style unit groups can still incur Body Corporate Fees of around $5,000 per annum*.
(*based on typical examples of styles of units, Body Corporate Rates listed are inclusive of Admin and Sinking Funds and Insurances).
Once Body Corporate Fees are deducted from typical rental rates, actual net incomes and subsequent net returns can be significantly diminished. It is not uncommon for some units to have outgoings which equate to at least 50% of gross market rental income. In such instances, actual Net Yields are significantly lower than those reported gross returns.
Despite the high costs of outgoings generally associated with owning residential units in Cairns, and Net Yields typically being significantly lower than the reported Gross Yields; there are many units in Cairns which still achieve adjusted Net Returns of around 5% on market rent. A 5% Net Return is considered relatively favourable in comparison to the returns achievable on most residential properties across the country in the current climate.
Given the current Median Unit price levels; strength of the rental market with historic low vacancy rates; increasing tourist activity in the locality; and relatively strong local economy outlook, there is notable potential for capital growth in Unit Prices in the Cairns locality.
As such Units in Cairns appear attractive as an investment often providing favourable Net Returns combined with some potential for Capital Growth.
Some units within holiday style resorts also have the additional benefit of providing short term owner’s personal use, combining a lifestyle option with the investment.