Australian’s long-held dream of buying the house on a quarter-acre block isn’t going to disappear anytime soon, and for good reason. Home and land packages offer a much better long-term investment than apartment purchases. Here's why:
1. It’s the Land that Holds the Long-Term Value – Not the Building!
Even when you factor in higher entry costs and maintenance
expenses, buying a house still provides the best opportunity for capital
appreciation.
When you buy a house, it is the land the house sits on that
increases in value, not the house itself! As land becomes scarcer (especially
close to urban centres) it becomes more valuable, meaning homes with land will
appreciate at a faster rate than apartments in the same area.
Now, that isn’t to say that apartments don’t have the
potential to grow in value, and some commentators have pointed to figures from
the last five years that show apartments outperforming houses when it comes to
capital growth.
However, property cycles are longer than five years, and if
you look at the numbers over the last decade, houses are still the long-term
winners. Over the last ten years, median house prices have increased by 81% -
whereas median apartment prices have increased by 72%.
“Historically, over a longer time frame, price rises for
houses are greater than that for units, [but] this is not always the case over
a shorter to medium time frame," a REIA spokesperson says.
So, if you’re in it for the long haul (as every wise
property investor should be), a house is a better investment.
2. Apartment Restrictions Limit Suitable Renters & Future Buyers
While owning your house means you can do whatever you like
with it – as long as you stay within council regulations - many restrictions
come with apartment ownership. All of these limitations can get your property
crossed off a potential buyer or renter’s list.
Pet restrictions:
The love of a pet conquers all for many, and if the body corporate forbids
furry friends from entering the building, this could be a deal breaker.
Level & ease of
access: No matter what level your apartment is on, you’re going to be
halving the number of people who want to live there. While DINKs might relish
the idea of life on the uppermost floors, young families might be put off by
the hassle and risk to children that heights bring. Or, on the other hand,
while older people may prefer the ease of access that a ground floor apartment
provides, young singles might not be willing to swap a balcony for a courtyard.
Renovation
regulations: By-laws that restrict the amount you can modify a property are
another drawback – especially for money savvy future buyers. Australian buyers
are increasingly looking for ways to save/make money and if improvements like
installing solar power or new flooring aren’t easy to implement many will move
on to the next option.
3. Apartments Don’t Fare Well in Downturns
Some argue that apartments are a better investment than
houses in the suburbs because people will always want to live closer to the
city. Therefore, apartments will always rent out easily.
However, with developers building so many apartments, the
inner-city market can easily be tipped into oversupply.
Apartment owners are the first to suffer when it comes to
housing gluts.
Too many apartments – all of which are probably similar in
size and features – means more competition to attract renters, which in turn
means lower rental yields. All the while mortgage repayments will remain the
same. So you’ll make less money waiting for demand to catch up to supply,
instead of saving up for your next buying opportunity.
4. A Small Slice of Valuable Land v a Big Piece of Cheaper Land?
Some economists argue that it is better to own an apartment
that sits on highly valuable land than a house which is worth more than the
land it is built on.
However, while having a high land-to-asset value ratio may
seem appealing, it’s a moot point because, realistically, few apartment owners
ever have the opportunity to cash out on that land value.
You’ll most likely have no control over what is done with
the land your apartment is built on unless a developer decides to buy out the
whole complex. And this simply isn’t going to happen for the multitude of new
apartment complexes springing up in CBD areas.
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