Higher rental yields and accelerating capital growth is seeing Hobart and Canberra close in on year-on-year top capital city performers, Sydney and Melbourne.
Over recent years, both cities have seen much stronger total returns than other capitals.
As reported in the October CoreLogic Home Value Index released last week, combined capital city home values rose by 7.5% over the year to October 2016 with the accelerating annual growth trend most evident within Sydney and Melbourne.
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.
While the home value index looks at changes in values, the CoreLogic Accumulation Index factors in the change in values over the year along with rental returns.
As a result, the Index provides the total returns from residential property.
By factoring in rental returns, the total returns from residential property are actually positive cross all capital cities despite declining values in both Perth and Darwin.
The total returns index also shows that Sydney and Melbourne are not quite so far out in front.
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 returns is resulting in total returns in these two cities closing the gap with Sydney and Melbourne.
Looking at cumulative value growth over the five years to October 2016, Sydney and Melbourne stand head and shoulders above all other capital cities.
Over the five years to October 2016 Sydney home values have increased by 62.3% and Melbourne home values are 38.1% higher.
No other capital city has recorded cumulative growth of at least 20% over the past five years.
Total residential property returns over the past five years indicate that property has performed much better than the headline value growth shows.
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.
The strong value growth in Sydney and Melbourne over recent years has been a key driver of demand from the investment segment.
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.
With Sydney and Melbourne seeing much greater value growth than all other capital cities over recent years and rental returns pushing to lower level, the total returns on offer in Hobart and Canberra are likely to remain attractive for investors, particularly those looking for opportunities outside of the two largest capital cities.