Smaller capitals to overtake Sydney and Melbourne

According to the CoreLogic Home Value Index for October, combined capital city home loan values rose by 7.5 per cent over the year, with an accelerating growth trend most evident within Sydney and Melbourne.

Research analyst Cameron Kusher commented: “While the change in values is important, it only tells part of the story with the total return also an important figure to focus on.”

“The total returns index also shows that Sydney and Melbourne are not quite so far out in front,” he emphasised. “The strong value growth in these two cities is offset by record-low yields.”

“Meanwhile, more moderate but accelerating value growth in Hobart and Canberra along with higher rental yields is resulting in total returns in these two cities closing the gap with Sydney and Melbourne,” he said.

The cumulative value growth over the five years to October 2016 shows that Sydney home values have increased by 62.3 per cent and Melbourne home values by 38.1 per cent. According to Mr Kusher, these results show that total property returns over the past five years have performed much better than the headline value growth shows.

Mr Kusher noted: “Although Sydney and Melbourne have still recorded the strongest total returns over the past five years, returns in the other capital cities are much stronger once you factor in the rental return performance.”

“Over the past year, total returns have begun to accelerate in Hobart and Canberra. Although value growth in these two cities has not been as strong as in Sydney and Melbourne, the superior rental returns are resulting in stronger total returns.”

[Related: Capital city dwelling values reach ‘new record highs’]