Should You Buy a House or an Apartment?

This is a common question asked by property investors throughout Australia, and is the subject of great debate amongst property experts.

Apartments as Investments

Traditionally, property owners, particularly in the baby boomer generation, aimed to buy a house on a good sized block of land with a decent backyard – “the great quarter acre Australian dream”. This is changing somewhat as the demographics of our major cities are shifting and more and more and buyers are favouring smaller dwellings in central locations which are handy to places of work, with strong public transport and close proximity to trendy cafes, bars and restaurants. Young professionals, couples, overseas immigrants and down-sizers are the most common types of buyer in this market segment.

Even without considering the usual location benefits that they offer, the other reasons that apartments and townhouses are now a popular option are:

1) Increased security

2) Lower maintenance

3) More modern layout and construction styles 

4) Within an affordable price bracket

In the Brisbane market, high-rise apartments in central areas are currently in over-supply due to a construction boom and should be avoided at this time. Townhouses aren’t produced in quite the same density but again, there are certain pockets to avoid due to an abundance of supply.  If wanting to purchase an apartment or townhouse, you are best off focusing on small, boutique blocks with strong land content and in blue-chip locations. Avoid high rises/large complexes and generic off-the-plan or brand new purchases with a huge developer premium built in to the purchase price!

Houses as Investments

The old saying goes: “land appreciates in value, while buildings depreciate in value”. For investment purposes, this tends to favour the purchase of houses where a larger component of your investment is tied up in the land. 

Houses are on larger lots and are only one or two stories high, so within any given suburb there can only be so many houses due to physical space restrictions. This naturally limits the supply and if located in an attractive lifestyle area, the demand will be very strong. Typically these locations will have some or all of the following attributes:

- Proximity to the CBD (exact distance depends on your budget!)

- Near water or with city or suburb views (elevated)

- Near public transport

- Near trendy cafes and restaurants

- Within interesting zoning (development potential)

- In good school catchments

Remember – not all land is created equal, the location is very important. You should target fully established suburbs, where no more land is being created!  

Conclusion

So what is the answer – does a house or a unit make a better investment? It depends on the local property market! 

Units in favourable locations in Sydney and Melbourne have performed very well over the last few years as those markets have boomed. Going forward, as long as there are no over-supply issues, then apartments could be quite interesting for investment. Location does matter so for me, in these cities, it would depend on my budget; if it was relatively limited, I would rather have a partial share in a well located block of land and building (through ownership of an apartment) than a house and land in the middle of nowhere 50km from the CBD.

In Brisbane, a unit can be a fine investment if purchased with smart selection criteria and careful analysis (in a nutshell: in a small complex of less than 10 and ideally 4-6 units, with a strong land content, low body corporate fees and in a central blue-chip location within 5km of the CBD close to public transport and amenities).

Overall however, I would pick houses to outperform in terms of capital growth over the long run in Brisbane (for any budget). Despite the noticeable shift in demographics towards central locations and apartment style living, property is ultimately a game of supply and demand. Houses at this stage are still highly sought-after for young and mature families as well as first home buyers and in most cases there is a limited supply, whereas units are over-supplied. 

Blue-chip suburbs within 5km of the CBD provide excellent opportunities in the $1m+ price range, within 5km - 15km you are looking at $500k - $900k for the best investment locations. If working with a limited budget <$500k, my strategy would be to purchase a house a little further out from the CBD but still in pockets with limited supply - we are finding excellent opportunities with high land content, strong yields and with future development potential around 20-25km from Brisbane CBD. This is what I am buying for my clients in this price range in Brisbane at the moment! 

If you are set on living centrally but would also like to invest in property and have a limited budget, then I would suggest “rentvesting” i.e. purchasing a good quality house slightly further from the CBD and then renting a unit near the CBD – due to the level of supply you should be able to secure a great deal in the current market.

No matter where you buy, research thoroughly and get to understand the market growth drivers before investing or purchasing your next place to live. A few key tips for both house and apartment buying will be covered in my next blog post!

If you want to get in touch, please send me an email:

micahkg@gmail.com