Investors based in Sydney and Melbourne are flocking to these interstate locations for their next buy

Anne Flaherty

Anne Flaherty, Economist

rea insights

Properties in South Australia and Western Australia are attracting more interest from interstate investors, as a growing number of buyers based in the east look further afield.

In 2020, 84% of the searches to buy property by those located within New South Wales were for properties in their home state. In 2021 this figure declined to 81% and, in the year-to-date, has dropped to 77%.

That is, more than one-in-five searches to buy real estate by those based in NSW are for properties outside the state.

South Australia has seen the largest rise in interest from NSW buyers. Comparing the 12 months ending May 2022 with the same period in 2021, the number of searches to buy property in SA by those based in NSW has risen by a staggering 91%.

SA isn’t the only state being targeted, with 47% more buy searches in WA, and 43% more searches in both Queensland and the Northern Territory.

In contrast, the total number of home state buy searches in NSW slipped by 2% over this time.

In Victoria, it’s a similar story. Searches to buy property in SA and WA have risen by 28% and 42% respectively.

What’s driving the rise in these buyers looking beyond their home states? The first and most obvious reason is price.

In May, the median price of a unit in the Greater Sydney area was $785,000, according to PropTrack data. This is above the median price of a house in every other capital city in Australia, except Melbourne and Canberra.

In Greater Melbourne, a median priced unit is $621,000 – more than the median cost to buy a house in the Perth, Adelaide, and Darwin.

For the cost of a unit in Sydney, an investor could get a whole house in most other capital cities. Picture: Getty

In the two years following the slashing of interest rates in early 2020, Australian property saw the third-highest spate of price growth in history.

For those that already owned property, this has led to significant equity gains – particularly in our two most expensive cities – which can fund further investments.

The search for a strong yield is likely another key driver of this interstate rush by investors.

In a given market, units are typically priced below houses. While generally producing higher yields than houses, units tend to see relatively lower capital gains.

Over the past two years, the price of property has appreciated far more quickly than rents and this has driven yields lower.

Currently, gross yields for units in Sydney and Melbourne average 3.5% and 3.8% respectively. Bar Canberra, these are below the average yields seen for houses in every other Australian capital city.

Investors from Sydney and Melbourne are flocking to Perth in search of more affordable assets that produce higher incomes. Picture: Getty

For many investors, the search for stronger yields has become more critical.

While interest rates are beginning to rise, they are still extremely low relative to historic levels. This remains a challenge for income-seeking investors, particularly as inflation picks ups.

For buyers from Sydney and Melbourne, interstate markets present an opportunity to purchase a house and land for less than the cost of a unit in their home market.

And those types of investments are far more likely to produce a higher yield.