As an investor, should I purchase a House or an Apartment?

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‘Should I buy a house or an apartment?” Is a question we are asked frequently by investors and potential investors. 

Adding confusion to the hunt for answers and clarification is the endless commentary suggesting that there is only one way to go to “guarantee” capital growth; self proclaimed property experts and companies within the property industry will generally be fans of either one or the other.

They are very vocal about the negatives of the property type they don’t like or believe in (or understand for that matter) and often draw on incorrect data, or isolated census statistics to support their chosen asset class and draw people in to their line of thinking.

Let’s look at some simple facts and figures that might shed some light on this debatable topic:

  • In the long term (since property data recording began) median detached house prices have outperformed units (Residex)
  • In the short term; median unit prices have outperformed houses (Residex & RP Data)
  • There has been a substantial increase in the last 20 years of lone-person households. In 2011, 24.3% of dwellings had only one occupant (Census Quickstats)
  • 44% of us still live in 3 bedroom homes (Census Quickstats)
  • Only 14% of lone-person households live in one bedroom dwellings (Census Quickstats)
  • “Most home buyers (owner occupiers) who are wanting to maximise their private open space will opt for the following; a house further away from the city, an apartment in an older block of units if buying established, or a unit in a boutique low-rise building if buying new” (NAB Quarterly Australian Residential Property Survey)
  • Our demographic profile is changing, couples are getting married and having children later, buying their first home when they are older, more of us are single or not in serious relationships (ABS Data) Apartments are what we choose until we “settle” as they offer low maintenance lifestyles, are convenient to amenities and are more affordable than inner city houses and townhouses.
  • 58% of apartments in Australia are owned by investors, in the inner city in Melbourne and Sydney, this is closer to 70% (ABS Data)

Sound like a pretty even battle? That’s because it is. Some industry experts would have us believe that apartments are the only way to go in the future, that everybody wants to live close to the city, minimise maintenance and maximise convenience. However this is simply not true and our Census data proves it, with a large percentage of Australian residents still choosing to, or aspiring to live in a traditional house.

 
More than two thirds of purchaser’s at any given time in the property market are owner occupiers. Owner occupiers buy with emotion which helps drive property prices up. So if you are looking for capital growth (not just yield) you need to be thinking and buying like an owner occupier in the area. There would only be a very small percentage of home buyers who would want to live in a one bedroom unit in Ringwood for example where most residents are married with children, just as there would be a very small percentage of buyers who could afford to live in, rent or buy a $2.5 million house in South Melbourne where there is a very high percentage of lone person households. Buy the property (house or apartment) that appeals to the largest segment of http://www.achaten-suisse.com/ the market in the area.

Over the long term, if you purchase the right style of property (apartment, house, townhouse), that is right for the area (distance from the CBD, land content, quality, size, value, demographic profile of the area) and give it time (10 years +) I guarantee that an apartment and a house bought at the same time will perform almost identically.

 

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