When buying property most face the question of whether to opt for a house or apartment. In major Australian cities, investing in an apartment is a serious consideration due to relative affordability (or the unaffordability of stand-alone homes). There’s a lot to consider in 2022, and each state’s circumstances can be different. While many may think investing in a house outweighs investing in an apartment, both bring their share of pros and cons. In this article, we weigh the pros and cons of buying an apartment in Australia.
Brief Overview
House prices in Australia have surged over the past few years. Especially with the onset of the COVID-19 pandemic, many have racked up savings and are looking to utilise low-interest rates to buy their first home.
The demand for apartments shows steady growth as more individuals seek to purchase a property. According to the Australian Bureau of Statistics, a 25% increase in single-parent and lone-person households is projected between the years 2016 and 2041. Apartments tend to accommodate those with lower income. Therefore they attract young individuals looking to move out of their family home, single-parent households, and those just looking for a cosy home in the city.
Pros of Investing in an Apartment
Affordability
One of the most important aspects of buying a house involves the marginal differences between the cost of a house and an apartment. First home buyers generally choose apartments over houses due to their affordability.
Shared maintenance costs
Unlike in houses, apartments usually provide residents with a shared maintenance cost. This means one family does not shoulder the entire expense like with a house, instead of body corporate fees will oversee and maintain common areas. This includes near resort-style facilities in some buildings (concierge to pick up your mail, swimming pools, gym and yoga rooms).
Access locations that are otherwise not affordable
A major advantage of investing in an apartment comes from being able to purchase property in a fast-growing area for a significantly lower price (compared to a house or townhouse). Investing in an apartment a ‘good’ area may reap benefits like attracting good tenants.
Capital growth is possible in good areas too, but given the oversupply of apartments especially in Melbourne, Sydney and Brisbane this is unlikely for a few more years. In Australia, not many regions have seen such apartment value growth so it doesn’t apply to most CBDs since the boom in supply 10 years ago. This issue does not apply to nicely placed apartments in lower supply areas (e.g. beachside in low density areas).
Cons of Investing in an Apartment
Less land resale value
Most apartments come with little to no land, as such the growth of capital among units is lower than houses. However, this means that a massive profit cannot be made overselling an apartment like you would a house. Still, features such as location, property market trends, condition, and comparable sales can all influence the price of apartments.
Less privacy and small spaces
Unlike living in a house secluded from others, apartments offer comparatively less space. Apartments often expect residents to follow a length of said and unsaid rules such as noise restrictions. This means even activities like an intense cardio workout may be restricted due to it disturbing the lower floors.
Additionally, living spaces in apartments are often small. With the coronavirus pandemic, families may find it uncomfortable and cramped to spend lockdowns in such a tiny space.
High body corporate fees
Another disadvantage of apartments comes with the seasonal payment of body cooperate fees. These fees while not as high as house maintenance costs, often do total to significant amounts. Body corporate fees cover all shared areas of the apartment such as the lobby or pool. For residents that do not use these areas it becomes an expense with no return. Especially if you are in a building with a lot of amneties. As a rule of thumb, estimate $1000 in body corp costs each for a swimming pool, 24/7 concierge or gym. Always clarify what these total costs are before signing up for any apartment!
Oversupply
This has been a long-standing concern for many years in CBDs. Record levels of new apartment supply till 2023 does not help. This leads to apartments in these regions to struggle in areas of finding a tenant, rental yield and also capital growth. For example, the prices of apartments in Docklands or Southbank have barely changed (if not dipped) in the last 10 years!
Conclusion
Given the oversupply and movement away from CBDs, apartments in Melbourne and Sydney are still a no-go zone. And some banks won’t even lend you money for them. So it’s really hard to see those regions overcome this market.
But the other regions are fair game in terms of these pros and cons for the smart investor.
