Detached homes have long been a favourite option for investors and homebuyers alike.
Buying a house. It’s long been a central part of the Great Australian Dream – and one that is slowly slipping out of reach for many people due to rising property prices. Generally considered more affordable, apartments could well be the next best thing. But how do they compare in terms of capital growth? And which of the two makes a better investment?
UNITS VS HOUSES
According to PIPA vice chair and managing director of the ASPIRE Property Advisor Network Richard Crabb, choosing the best type of investment isn’t really a case of units versus houses.
Units tend to be more affordable.
“It all comes down to the underlying metrics and data for it,” he says. “Because both houses and units can perform really well.
“It comes down to picking the asset where scarcity is real, supply is contained and the cost to hold it is within someone’s means. And if they do that without emotion, they should be able to choose a good investment, either houses or units.”
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ADVANTAGES
While houses often hold the potential for renovations or redevelopment since you own the land, units often have the advantage of being in CBD locations or closer to amenities, Crabb says. With the exception of prestige waterfront properties, units usually tend to be more affordable than freestanding houses – however, ongoing strata costs can significantly reduce the yield and cashflow.
Houses offer better land content value.
LAND CONTENT VALUE
Author and CEO of Rethink Group Scott O’Neill says while units make sense from an affordability perspective, generally speaking, houses tend to deliver better capital growth over time. This is because it’s really the block of land rather than the building itself that goes up in value. The exception to this are apartments with highly sought after views that will never get built out, he says.
“If you want to make more money, houses are the answer,” he says. “The key is just to align the property with the strategy. If you want to build wealth, focus on growth and compounding equity and that’s going to push you towards houses.”
Strata fees can detract from the yield of apartments.
He says there has been Australia-wide capital growth of about 8-9 per cent across houses compared to 5-6 per cent growth across units since 2010.
“Obviously the big disclaimer is every region has different numbers,” he says. “But there’s basically 3 per cent lesser gross rate per annum on average.”
He recalls the first property he bought in Sydney’s Sutherland Shire back in 2010. He had been considering purchasing an apartment for $450,000 but decided to buy an old fibro house on 650 sqm for $480,000. He says the house is now valued at about $2m while the unit is worth about $1.1m.
“It’s $900,000 difference – and they were only $30,000 apart, at the time, in value,” he says.
In any investment, scarcity tends to drive demand.
WHAT TO LOOK FOR
Whether you invest in an apartment or a house, PIPA vice chair Richard Crabb says it’s helpful to consider the following things:
HOUSE
* Scarcity drives up demand
* The right floorplan for families in the area will attract renters and buyers
* Proximity to amenities is also appealing
* Areas with a lot of available land won’t be as scarce
Proximity to amenities can be a useful feature.
UNITS
* Boutique mid-rise buildings often appeal
* Look for a good mix between owner-occupiers and investors
* Low rental vacancies in the building reduces competition
* Avoiding oversupplied markets reduces risk of stagnant growth
* Proximity to amenities is an important feature for units
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