As detached houses become increasingly unaffordable, units are sometimes wiser investments, but there’s more to the story. Units can be better for reasons you’d have never dreamed
There was a time when investing in apartments was considered to be a far inferior choice to buying a home or duplex.
The value of real estate is in the land, the experts say, so you should plonk your investing dollars in houses where the land value appreciates for many years to come.
However, George Raptis, director of Metropole Sydney says that rule doesn’t always apply.
“Some people have this notion where they think that a house and land is a good concept as far as investment is concerned, because obviously the land appreciates, but the house doesn’t,” he says.
“But here’s the thing: if you go out into the suburbs and buy a house and land package, you might pay $400,000. Of that, $100,000 accounts for the land, and $300,000 is the cost of constructing the property. So the part of the asset that appreciates is only a small portion anyway.
“If you buy an apartment in a premium land-locked suburb, the land has a higher value. There might be a block of 10 apartments in Bronte, for instance, where the land beneath is worth millions of dollars. Your land-to-asset ratio is a lot higher, and that’s really what drives the price up.”
In other words, Raptis is saying that it might be better to own a small slice of a highly valuable piece or land, rather than a large slice of a low-value patch of dirt.
To add weight to his argument, Raptis confirms that units have recently outperformed houses as far is growth is concerned.
“That’s not traditionally the norm – usually, it’s normal for house values to outperform units,” he clarifies.
“But I think apartments will continue to make good investments, because it all comes back to supply and demand.”
Raptis points to Australia’s changing demographic as the main driver of growth in apartment living.
“Obviously, units are more affordable, and rising property prices mean that more people are looking for units as opposed to houses,” he says.
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