People often ask me, ‘What’s the better investment – a house or an apartment?’ The correct answer depends on your lifestyle and your budget.
by John McGrath
Image: Apartments in Kirribilli
If you’re looking for low maintenance and a cheaper entry price, obviously an apartment is going to fit the bill. But if you’re looking for something with better growth potential, and you’re willing to do a bit of maintenance, a house is a better choice.
The big upside of houses is that their value typically grows faster than apartments. If you buy a house that’s a bit older and needs a little bit of rejuvenation work, you can generally add value quickly and early, if you choose to.
The obvious advantages of apartments for the investor are that the entry price is often lower and the owners’ corporation takes care of maintenance of the building. Renter demand is also in favour of apartments, which means a greater yield for investors. RP Data-Rismark figures show the average capital city apartment yield is 4.9% compared with 4.2% for houses.
You’ll also find that apartments tend to have fewer vacancies, as long as you buy in an area that doesn’t have an oversupply. Plus, the very nature of apartments means there are more of them in popular locations for renters, such as village hubs surrounding train stations or public transport.
RP Data recently published a list of the Top 50 locations nationwide with the highest proportion of renters, which gives an indication of the areas popular with investors and tenants alike. About 40% of the suburbs are in Sydney, 14% are in Brisbane and 10% are in Melbourne and Perth. Here’s the Top 5 suburbs, in order, for each capital city (although some cities only had 1 or 2 suburbs in the Top 50).
NSW – Chippendale, Gosford, Ultimo, Harris Park, Kirribilli
QLD – Fortitude Valley, Spring Hill, Cairns North, South Brisbane, Milton
VIC – Melbourne CBD, St Kilda, Docklands, South Yarra, West Melbourne
WA – Northbridge, Crawley, West Perth, Perth CBD, East Perth
ACT – CBD, Kingston, Turner, Phillip
NT – Darwin CBD, Larrakeyah
SA – New Port
TAS – Hobart CBD
Australians are not about to stop investing in property either. Australia’s largest mortgage broker, AFG says 35.2% of all new home loans issued nationally in July were for investors. In NSW, this number rises to 40.7%.
There’s a clear preference among investors for apartments. According to RP Data and the Bureau of Statistics, 58% of apartments are owned by investors compared to 21% of houses.
I have always advocated capital growth over yield as the No 1 priority for investors. Yield is very important, but capital growth is the key to long term wealth creation through property. So my advice to investors is: buy a good house if you can afford to, otherwise buy the best apartment you can.
