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Sydney suburbs where apartments are 'too affordable'

Aerial shot of Neutral Bay, Sydney
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Neutral Bay on the Lower North Shore has one of Sydney's biggest price gaps between houses and apartments. Photo: Shutterstock

Sydney suburbs where apartments are 'too affordable'

A widening gap between house and unit values is creating value opportunities for investors in certain blue-chip Sydney suburbs, with multi-residential dwellings almost becoming 'too affordable'.

A widening gap between house and unit values is creating value opportunities for investors in certain blue-chip Sydney suburbs, with multi-residential dwellings almost becoming ‘too affordable’.

That’s the call from Leichhardt-based buyer’s agent Nick Viner, who is watching the apartment and unit market closely for his Sydney clients despite the ongoing uncertainty over vacancy rates and rental demand with international borders closed.

Mr Viner, the founder of Buyer’s Domain, said price increases on the back of Sydney’s red hot market were largely confined to detached houses, with unit values lagging behind.

Median price data from CoreLogic shows that while house values in Sydney have risen by 8.2 per cent since the start of the year, unit value increases have been much more modest at 3.2 per cent.

  • Sydney median house price, April 1 2021: $1.11 million (+8.2% year to date)
  • Sydney median unit price, April 1 2021: $755,360 (+3.2% year to date)

That price disparity, Mr Viner said, makes apartments and units in some of Sydney’s best suburbs much better value than houses.

But Mr Viner said he believed those considering buying an apartment should do so as soon as possible, with his expectation that unit and apartment prices would soon follow house prices up.

“The time is now because house prices in Sydney are just going through the roof at the moment,” Mr Viner told Australian Property Investor Magazine.

“It will be interesting to look at the data when it’s released for this period in more detail.

“Anecdotally, I’m hearing about house prices going up around 25 per cent in certain suburbs and in certain pockets since the beginning of the year. That’s massive.

“Apartments haven’t yet caught on although they are starting to move, in some of these suburbs already I am noticing they are just starting to move.

“What’s happening is that people are missing out because of these phenomenal house prices, they don’t have the budget to buy in, but they still want to stay in those suburbs.

“So what’s the next best option? It’s apartments, so the time to act is now, because I think the market is not going to get any easier for buyers in the short to medium term. 

“The growth rate will probably slow down at some point in the future but I think apartments for the short to medium term are the best bet because they are a much more affordable solution than houses and they have to be set for some growth.”

Mr Viner, however, acknowledged that not all suburbs, or apartments, were created equal, and buyers needed to be well-researched and thoughtfully consider the location or dwelling they chose to buy.

“You have to be careful buying apartments, in some ways more so than buying land,” he said.

“My comments are restricted to the suburbs that I’m highlighting, but they’re indicative of the sorts of areas you have to focus on.

“I would be trying to get within five to seven kilometres, maximum, from the CBD, and looking at low rise boutique blocks, steering well clear of all of that high-rise stuff on major arterial roads.

“That’s the sort of stuff that you want to avoid and I think people are right to have ongoing concerns with those types of properties, but I wouldn’t tar all apartments with the same brush, as the saying goes.

“Yes, investors are concerned about buying units and they haven’t seen the same capital growth as houses, but for the short to medium-term there are types of apartments that are very much worth looking at now because I, for one, have never seen such a huge price disparity between two bedroom houses in somewhere like Marrickville and two bedroom apartments in Marrickville.”

Mr Viner said another tip for bargain-hunting investors or owner-occupiers would be to stick to established buildings rather than off-the-plan or newly-built apartments.

He said established apartments in smaller, boutique-style buildings would likely see a capital growth uptick quicker than higher-density, newly-builts high-rise apartment towers.

And buying established, Mr Viner said, can give added peace of mind for those worried about apartment building defects, such as those experienced by buyers at the Mascot or Opal towers.

“A client of mine said she wanted to buy something new because she believed they had fewer problems than old buildings,” Mr Viner said.

“That’s a myth. The problem is that builders and developers these days probably cut more corners than they did in the past, yes a building might look shiny today, but it hasn’t actually got the history to understand how the defects are going to arise to the surface.

“So you’re buying very much blind. Whereas if you are buying a 20 or 30 year old building, you have got the history there and you know how the building has performed over time. 

“The only thing that you have to remember with an old building is that you have got to keep up with the maintenance. If the maintenance is not up to date, then it is probably not going to be a good buy. 

“But if you’ve got an active strata and they are on top of the maintenance and you’re looking at a 20 to 30 year old building, you’re not buying blind, you’re buying into a property with a history of problems.

“They have all got problems, but it’s understanding the history of those problems and how serious they have been and how well they’ve been managed. You don’t get that with a new property.”

Top 5 Sydney suburbs for apartment value

  1. Marrickville
  • Median house price, April 1 2021: $1.62 million
  • Median unit price, April 1 2021: $757,108 

Located in Sydney’s inner west, Marrickville has recently experienced a rapid rise in house prices.

Since the end of December, Marrickville’s median house price has risen from $1.44 million to $1.62 million, or 12.5 per cent, according to CoreLogic data.

Over the same period, unit prices are up just 2.7 per cent.

Mr Viner said there was “quite a chasm” between the value of houses and units in the suburb.

“Many buyers are being priced out of the detached housing in Marrickville, but they are still very keen to live in the suburb,” he said.

“It’s trendy, there’s a lot of going on in terms of development and infrastructure changes, including the new Metro. 

“Gentrification is occurring but in a way that retains the local character and charm.

“Marrickville is well located and has convenient links to the city. And for hipsters who eventually settle down and have kids, there are some excellent local public schools.”

  1. Leichhardt
  • Median house price, April 1 2021: $1.62 million 
  • Median unit price, April 1 2021: $934,577 

Located around 5 kilometres west of the Sydney CBD, Leichhardt is an historically Italian enclave with a unique village feel and vibrant community.

“The current median house price is significantly higher than the median for units,” Mr Viner said.

“It’s been quite a sharp increase for detached values too – about $160,000 in two years – in stark contrast to units, which rose just $40,000.”

“But, in the three months since December, median unit prices have actually surged another $30,000, giving weight to my theory that pent up price growth in the Leichhardt apartment market is just coming to fruition.”

Mr Viner said fear of missing out, or FOMO, combined with budgetary pressures are driving a surge in unit attention from would-be house buyers.

  1. Randwick
  • Median house price, April 1 2021: $2.8 million
  • Median unit price, April 1 2021: $1.02 million

The near coastal suburb of Randwick is another where the gap between house prices and apartment prices is profound.

Mr Viner said the median house price in Randwick had risen by around $150,000 in the past 24 months, while unit prices remained largely stagnant.

“A plethora of recent apartment sales well in excess of $1 million have me convinced the gap is starting to narrow,” he said.

Mr Viner said it's not hard to appreciate the universal appeal of this suburb.

“The recently completed light rail makes it a breeze to get to. There are great local amenities,” he said.

“It has a nice welcoming and safe feel about it. The UNSW and TAFE campuses give the area a young and vibrant feel too.”

  1. Surry Hills
  • Median house price, April 1 2021: $1.9 million
  • Median unit price, April 1 2021: $906,788

A stone’s throw from the city but still right in the thick of the action is the ever-popular Surry Hills.

“It amazes me that the median unit price here isn’t above $1 million, but instead currently sits at $906,000," Mr Viner said. 

"It has shot up a bit in the past few years, though – from $850,000 just two years ago.

"But it is quite a way behind the $1.9 million median for houses.”

Mr Viner said as people make their way back to inner Sydney after COVID, Surry Hills was primed to benefit.

“I believe investors and young professionals will lead the charge to Surrey Hills,” he said.

“As such, don’t expect unit prices to remain sub-$1 million for very long.”

  1. Neutral Bay
  • Median house price, April 1 2021:$3.01 million
  • Median unit price, April 1 2021: $1.08 million

Accessibility is also a benefit in the Lower North Shore suburb of Neutral Bay.

Mr Viner said the gap between house prices and apartments had widened in recent years, with detached houses dominating the dwelling types in the suburb, ranging from quant historic cottages to grand mansions.

“For house buyers locked out by price, the reasonable alternative is a far more affordable two-bedroom unit,” he said.

“This delivers all the locational benefits of Neutral Bay without the $2-million-plus price tag. A certain way to attract buyers as COVID’s shadow fades.”

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