Top property markets revealed: City-by-city performance
Sydney
Sydney's property market has traditionally been strong, with values increasing by 162.5% since 2005. However, the annualised return, after costs, equates to a more modest 5.21%. Rental yields in Sydney average around 2.5%, considerably lower than dividends paid out by many Australian shares. The verdict? Shares can deliver superior ongoing income potential.
Also, the cost of maintaining property in Sydney, including regular maintenance and property management fees, only reduces net returns further, which could make shares even more attractive for investors interested in long-term wealth growth.
Melbourne
Melbourne has also experienced massive property price increases, with property values increasing by 8.1% annually for the past 25 years. Nevertheless, high entry costs, ongoing maintenance fees, and comparatively modest rental yields have resulted in lower net returns than what you might get from a diversified share portfolio, especially when dividends are considered.
Recent market cooling and fluctuations in rental demand have only added to the challenges of generating consistent, high returns from Melbourne’s property, with rental yields in the city only sitting at around 2.37%. The difference in returns is stark when compared to the more predictable dividend streams typically offered by blue-chip shares.
Brisbane
Brisbane’s dwelling values have grown by 340% over the past 30 years, but this only translates to 5.1% per annum and doesn’t account for the costs of maintaining an investment property. With average yields modestly higher than Sydney and Melbourne but still below dividend income, shares have consistently delivered superior net returns, particularly when factoring in liquidity and cheaper management costs.
There’s also the reality of Brisbane’s slower population growth compared to other major cities, which has resulted in lower capital growth potential for property investors.
Perth
Perth has experienced fluctuations in property values due to economic volatility, notably linked to mining-sector cycles. Yes, property values have grown by 303% in the past three decades, but this equates to the lowest long-term growth rate across the capital cities (4.8% per annum). Despite recent market recoveries, average long-term returns have generally been lower than share investments, which can provide greater stability through diversification across multiple sectors.
The cyclical nature of Perth’s property market also poses risks for long-term investors, whereas diversified share portfolios have historically delivered steadier returns.
Adelaide, Hobart and regional areas
Regional markets and smaller capital cities like Adelaide (average annual compounding growth rate of 5.2%) and Hobart (housing values up 399% in the past 30 years) have shown strong growth, especially in recent years – largely thanks to lifestyle shifts post-pandemic and more affordability. But even in these markets, the liquidity, dividend potential and lower associated costs of holding shares often translates into higher overall returns, especially over extended periods.
Limited job growth and lower population surges in these regions could also dampen long-term property appreciation, which only serves to reinforce the comparative advantages of investing in shares.
