Investors See a Big Future in Apartments

Apartments are one of the most attractive options for price sensitive investors looking for investment property with potential for high yields and capital growth. Affordability, location, attractiveness to tenants – these are just some of the reasons for the growing popularity of apartments.

Prices

One of the key advantages of purchasing an apartment over a house is the price differential.

• Across Australia’s capital cities there is a 13.3 per cent (or $56,000) difference between median house price and median unit price.
• The difference is the highest in Canberra, where the median price for a house is $129,000 higher than that for a unit. In Sydney, the difference is $103,000. Sydney and Canberra are the Australian cities with the highest unit sales relative to sales for all other dwelling types (around 43 per cent for both cities).
• In Melbourne, Brisbane, Perth, and Adelaide, the differential is at around 18 per cent, much lower than Sydney or Canberra, but still a significant difference amounting to around $70,000.

Only two decades ago, apartments compromised only 25 per cent of all dwelling sales, but recently peaked at 36 per cent of all sales in 2009.

Changing Lifestyle Demands and Household Structures

In addition to their relative affordability, apartments present different advantages that make them attractive to tenants and enhance their potential for property investment:

• Location. Apartments are typically located in major emploiyment hubs in inner city areas. They’re also likely to be well serviced by amenities and infrastructure.
• Single-person households. Australia is experiencing a demographic shift toward single-person and childless households. The Australian Bureau of Statistics has projected that one-person households will surge to as much as 3.6 million by 2031, a figure to be compared with 1.9 million single-person households in 2006. A June 2011 study by the Grattan Institute found that single person households were much more likely to prioritise location over dwelling attributes.
• DINKS. ‘Double Income No Kids’ households will overtake households with children in the next few years. By 2031, couple-only households will form 60 per cent of the population.

Combined with affordability issues, these factors have encouraged many Australian households to start re-thinking their space requirements, such as adopting European or North American higher-density lifestyles.

Apartments Outperform Houses

Rental Yields

According to the latest figures on rental prices from Australian Property Monitors, the rental yields for units outperformed those for houses in the year to September 2011 by 0.9 per cent.

Median rents for apartments are close to parity with houses in most capital cities:

• Melbourne. Median rent for units is $350 compared with $360 for houses.
• Sydney. The median rent for units is $460 compared with $495 for houses.
• Brisbane, Perth, and Canberra. The median rent for units and houses are $360 and $370, $370 and $380, and $430 and $465, respectively.

Capital Growth

Like the rental yields, apartments are outperforming houses when it comes to capital growth. Recent data suggests that apartment prices are gaining speed and have surged in the past few years, especially in big cities like Sydney and Melbourne.

The national median house price grew from $183,100 to $458,100 (150.24 per cent) over the past 13 years. The median unit price grew from $153,200 to $373,700 or 143.93 per cent in the same period, indicating that units have also outperformed houses over the longer term.