Units challenging accepted wisdom about houses being best property investment
Apartments are becoming the property investment of choice for a growing cohort of Australians and 2024 shapes as a year where they may significantly outperform houses.
While the Great Australian Dream of homeownership remains, it is becoming more likely it will be something vertical rather than a standard suburban house.
The dominant paradigm of real estate that houses on land show superior capital growth to units is being challenged, as a growing number of important cohorts push demand for apartments higher.
One of the big trends to emerge in Australian real estate in 2023 was the ongoing emergence of apartments as a challenger to the dominance of houses as the dwelling of choice for more and more people.
This was one of the key findings of our surveys in 2023 for the quarterly editions of the Price Predictor Index, and it strengthened as the year progressed.
Suburbs where apartments dominate the dwelling mix are now among the most powerful markets in Australia.
From our analysis, the markets recording strong transaction numbers are dominated by units.
This includes at least a dozen suburbs in the Greater Sydney area, inner-city suburbs in Melbourne, Brisbane and Perth.
The Gold Coast also enjoys a sizeable proportion of buyer demand directed towards apartments.
While many may think it is just first home buyers creating demand in apartment markets, we’ve found demand overall is varied, and also includes:
- older people downsizing from a large family home
- lifestyle buyers seeking low-maintenance, lock-up-and-leave options in good locations
- overseas migrants from countries where unit-style living is the norm
- investors seeking affordability and higher rental yields in good locations.
In inner-city precincts in the biggest cities, houses can typically cost more than $2 million, but apartments can be bought in the $600,000s and $700,000s in the same suburb in many cases.
The rental yields are also significantly higher, a key consideration in times of higher interest rates – although it needs to be remembered that apartments do entail additional costs like body corporate fees.
In 2023, the annual change in unit rents was higher than houses in every capital city except Darwin.
There is a significant list of good reasons why apartments are attracting growing demand from a range of buyers and capital growth rates are improving.
The more we do our research, the more we find examples of locations where apartments are outperforming houses.
Not everywhere in Australia is producing these results but a rising number of suburbs are.
For example, in the coastal market of Evans Head in regional NSW, the median price for houses has fallen 15 per cent in the past year, but the median price for apartments has risen 14 per cent.
The long-term capital growth average for houses in Evans Head is a healthy 9.5 per cent per year over 10 years, but the growth average for apartments is considerably stronger, at 12.2 per cent per year.
In the Wollongong suburb of Fairy Meadow, there were 46 house sales and 64 unit sales in the past year, with the median price for houses dropping 12 per cent but the median price for units rising 16 per cent. Its median unit prices are in the $600,000s while median house prices are above $1 million.
At Coolum Beach on the Sunshine Coast in Queensland, houses and apartments have excellent long-term growth averages, but apartments are better – 14.4 per cent per year versus 13.1 per cent per year for houses. Units in that suburb are selling twice as fast as houses.
In Canberra, apartments are becoming increasingly popular where the median unit price is $590,000 but the median house price is close to $1 million.
There are many, many more similar examples to be found across the nation – providing growing evidence that one of the dominant paradigms in real estate (that houses do better than apartments) is being challenged.