What's the outlook for rental yields this year

As 2012 came to a close, there was a clear story to be taken from the
rental data.

Through the year, two cities broke well clear of the pack: Perth and Darwin.

The Darwin unit market was the best performing rental market in the country
last year, with median weekly rents increasing a whopping 19.6 percent,
according to Australian Property Monitors. The Perth housing market came
in a close second, increasing 17.5 percent.

Brisbane came in third place a long way back, with houses and unit rents
increasing about 2.6 percent. However, yields for Brisbane houses were still
the best in the country, at 5.3 percent, in equal top place with Perth.

However, Darwin unit yields were still a clear overall winner at 6.2 percent.

Around the rest of the country, the rental markets were essentially flat, with
housing rents even falling 1.4 percent in Melbourne, and 4.0 percent in Canberra.

It's a basic supply and demand story. Rental markets in Perth and Darwin are
incredibly tight.

According to SQM Research figures, Darwin has a vacancy rate of 1.1% and
Perth a vacancy rate of just 0.7%.

This is coming on the back of rapid population growth. Perth is growing by
1,500 people a week!

And what's driving this growth: mining, of course.

It should come as no surprise that W.A, the N.T and QLD are leading the way.
These are the states benefiting most from the mining boom.

Looking ahead, this story will continue to dominate, and Perth and Darwin will
continue to grow quickly. APM are also forecasting rental price increases in
Brisbane and Sydney, but there's little to get excited about around the other capitals.

The mining boom is still the big story in 2013. The broader economy is gathering
momentum, and this will eventually give a lift to the other cities. But until then, the
best returns are still to be found around the mining states.

who controls your loan?

Major banks control 77.5% of all loans

Commonwealth Bank (CBA) and its subsidiary Bankwest accounted for nearly 40% of all first-home loans processed in December 2012. Mortgage broker AFG's quarterly Competition Index shows that CBA accounted for 29.6% and Bankwest 9.3% of first-home loans. During 2012, Bankwest's market share declined from 12.6%, while CBA rose from 19.9%. CBA's strong performance lifted the major lenders' share of the first home buyer market to 77.5%. Suncorp remains the largest non-major lender with 5.5%, followed by Macquarie (3.6%) and ING (3.5%).

Property strategies

When it comes to property investment you’ll often hear two somewhat conflicting philosophies being bandied around. A common question beginning investors ask is – which is better?

Firstly there are the “Cash flow” followers; they suggest you should invest in property that has the capacity to generate high rental returns in an attempt to achieve positive cash flow. In other words, you want rental returns that are higher than your outgoings (including mortgage payments), leaving money in your pocket each month.

Then there’s the “Capital Growth “crew. Their favoured strategy is to invest for capital growth over cashflow. In other words, you need to buy property that produces above average increases in value over the long term.

In Australia, properties with higher capital growth usually have lower rental returns. In many regional centres and secondary locations you could achieve a high rental return on your investment property but, in general, you would get poor long-term capital growth.

Clearly if both exist there is a place for both so to answer the question of which suits you best, you really need to know what you want to achieve.

You see…property investment should be part of a wealth creation strategy, not just a purchase in isolation.

China's outlook on our property

The mining boom in 2013 was shaping the Australian economy at all levels, and its influence was felt everywhere. Of course the mining boom is bigger than just China. You can add India and the rest
of emerging Asia to the mix. But it's a good barometer of how things are tracking.

Things in China are looking a lot better than they were 6 months ago. Coming into 2012, the Chinese authorities were worried that the Chinese economy was over-heating. There were imbalances forming in the property and financial markets, and inflation was threatening to take off. So they tried to take some heat out of the economy and it worked too well.

Underestimating the headwinds coming out of the global economy, the Chinese economy came close to stalling. Australia watched nervously, worried that the demand that had kept the mining boom steaming along might suddenly evaporate.

Chinese authorities put their foot back on the accelerator, and at the beginning of 2013, China seems to have solid momentum behind it. The accelerator is infrastructure spending. China has announced a new round of massive investment in subways, airports and other 'mega-projects'. According to HSBC, investment is adding more to the economy now than at any time since 2009 - when China was doing everything it could to avoid the fall-out of the GFC.

And so at the end of 2012, exports were stronger than expected, credit was surging, and retail sales were improving. Industrial production was also stronger as was electricity output. As a result, economists were revising up their estimates of growth through 2012, to just under 8 percent. China looks like it's back on track. This is good news for Australia. The emphasis on infrastructure spending is particularly
good news for the mining industry. Steel demand seems likely to hold at stellar levels.

And the rapid urbanisation underway in China isn't letting up anytime soon. China will add another 100 million people to its urban centres by 2020, bringing the urbanisation rate up to 60 percent. The long-term drivers are solid. And it seems that in the short-term as well, through 2013 and beyond, China is on the right track. It looks like this year, Australian property investors can rely on China.