The next property gems aren't necessarily where or what you think
Apartments have long been overlooked by many investors but Matt Piotrowski, Managing Director of Dynamic Advisory, says selective buyers are finding value in well-located units trading below replacement cost in markets others have written off.
Ask most people where the next booming location is and they’ll point you to houses in the usual suburbs everyone’s already watching. We think a lot of the real value right now is sitting in the one asset class almost everybody has written off, and that’s apartments.
Apartments have a bad reputation. You’ve probably heard the standard advice a hundred times; steer clear, too much supply, no land, strata fees.
It gets repeated so often that most people treat it as gospel. While sometimes this may be true, there are other times it’s not, and that blanket dismissal is a big part of why parts of the apartment market are mispriced right now.
“A rule like ‘never buy apartments’ is lazy,” says Matt Piotrowski, Managing Director of Dynamic Advisory, a QPIA-accredited (Qualified Property Investment Adviser) buyers agency and property advisory.
“A blanket rule lumps a huge, varied part of the market into one bucket,” Mr Piotrowski said.
“There are apartments we’d never touch, and there are apartments that make a lot of sense right now; the whole job is telling them apart.”
What is of interest at the moment is stock trading below replacement value.
These are the properties you can buy for less than it would cost to build the same thing today once you add up land, materials, labour and a builder’s margin. That gap is what gives the position a floor. If you’re buying under the cost to rebuild, a developer can’t come along and undercut you with new supply at that price.
It doesn’t guarantee growth, but it does limit how far the downside can realistically go while creating more room for upward growth.
A couple of other things matter. One of them is yield.
“The apartments we look at bring in a lot more income than houses in the same postcode, and that’s not a small thing.
“Cash flow is what lets you hold the place through a flat patch,” Mr Piotrowski said.
The second is where the price sits compared to the suburb around it.
“We like areas where the median house price is significantly higher than the apartment’s price point.
“That keeps the property well within reach of the biggest group of buyers.
“You want to be buying properties you can eventually sell into the deep end of the buyer pool, not the top end where only a handful of people can afford to play.”
Out of favour city seen as undervalued
On location, Mr Piotrowski’s view goes against the grain.
He identified Melbourne as the most undervalued major market in the country.
“Melbourne cops a lot of criticism from interstate, but the headline median hides what’s actually going on underneath it.
He cited an example sourced from research platform HTAG Analytics.
While Melbourne’s overall median has softened, two-bedroom units in Dandenong have grown 9.63 per cent in typical value, and in Pakenham 12.38 per cent.
“Same city, two segments moving the opposite way to the headline. That’s the thing about averages; they bury the parts of the market that are quietly working and usually paint a very drastic picture that isn’t true for all suburbs.”
He pointed to the same pattern playing out before, in Perth.
“For nearly a decade, apartment prices in Perth went basically nowhere because there was too much supply,” Mr Piotrowski said.
“But once affordability pressure started biting and that supply slowly got absorbed, the picture flipped and units, apartments and townhouses started outperforming free-standing houses across areas of Perth.
“A lot of what we’re seeing in Melbourne now aligns with where Perth was back then.”
He stressed that he does not pretend every apartment is a winner.
He said most are not, and the ones to avoid are usually the obvious traps: oversupplied high-rise towers full of near-identical units, buildings carrying big special levies or unresolved defects, tiny floorplans no owner-occupier wants, and blocks where the land component, “the bit that actually goes up in value”, is spread so thin it barely counts.
“What we’re hunting for is honestly a bit boring and harder to find, namely smaller boutique blocks, sensible strata/owners corp’ costs, a slice of land per lot, layouts owner-occupiers actually want, and clean building and strata records.
“None of this is clever or exotic,” Mr Piotrowski said.
“It’s buying under replacement cost, in a suburb that supports the price, in a market that’s cheaper than people think, and then doing enough homework to dodge the buildings that’ll cost you down the track.”
