Investor activity on the rise in Tamworth property market with yields of 7% possible

Property investors are showing an increasing interest in investment properties priced under $300,000 in the NSW regional town of Tamworth, most famous for its country music festival held every January.

The increased activity is being spurred on by a combination of strong population growth, low vacancy rates and restricted supply of accommodation, according to a new report from PRDnationwide.

Tamworth is in the New England region of NSW about five hours (400 kilometres) north of Sydney, with its major economic drivers being manufacturing, health and community services, education, logistics, wholesale trades, and tourism and hospitality.

According to PRDnationwide research analyst Oded Reuveni-Etzioni Tamworth homes priced under $300,000 accounted for 64% of transactions over the six months to August 2012, compared with 54% of transactions for the same period in 2011.

Current Tamworth listings suggest gross yields in excess of 7% are achievable for properties priced well under $300,000

They include this three-bedroom house (pictured below) on a big block on Churchill Street advertised through Richard Jackson of PRDnationwide Tamworth at $192,000. Jackson says the property can generate a rental of around $265 per week – a potential yield of 7.2%.

According to October Real Estate Institute of NSW vacancy rate figures, New England’s vacancy rate eased from 2.3% to 2.6% but is still down on the 3.4% vacancy rate recorded in March this year.

Reuveni-Etzioni says house activity has stabilised over the past 18 months, with 425 houses transacting in the August 2012 half year period.

“This level, while short of the August 2009 peak, represents a balanced market. Enquiries from upgraders and investors have increased in September and October even though first home buyers interest declined following the cessation of the $7,000 first-home owner grant.”

“Demand for properties toward to bottom end of the market originated from first-home buyers and investors. While first-time buyers’ activity has eased, investors are still active, looking for solid yields in the six to seven per cent range.”

Reuveni-Etzioni says median rents for a three-bedroom house in Tamworth, the most common form of accommodation in the region, have increased by 14% in the three years to September 2012, “highlighting a shortage in supply of medium-density accommodation, amid a growing demand.

“While yields for units normally exceed house yields, a lower yield in Tamworth’s case was the result of an increase in the median unit price,” he says.

“The August median unit price of $199,500 represented a 12 months growth of 5.3%, which eroded the yields for some properties but otherwise provided a positive return to investors in the form of capital growth," he says.

According to Dean Cummins, principal of PRDnationwide Tamworth, Tamworth City is a good investment option particularly at the cheaper end of the market.

“Also, employment in the region is sound, with lots of new people moving into the area and vacancy rates of less than 2%,” he says.