Busting the apartment myth

It seems that almost everybody has an opinion on real estate, with plenty of ‘armchair experts’ who are keen to weigh in on the debate, whether the topic at hand is old property versus new, regional versus capital city, inner suburbs versus outer suburbs, or apartments versus houses.

It’s that last, often-discussed point that I want to focus on today.

As you may know I’ve been investing in property for many years; in fact more than I’d care to admit; and I recently noticed that I’ve been having a lot of the same conversations over and over again!

For example, just a last week I got into a robust conversation with a relatively new property investor, who was adamant that he’d worked out the secret to amassing a small fortune through property.

“Forget units and forget townhouses,” he said. “I’ve worked it out…

“If you want to get ahead in real estate, you have to buy houses, because the value of property is always in the land. A house deteriorates and loses value over time, but the land almost always increases in value. It’s the only way to truly become wealthy in property.”

Disregarding the fact that I tend to disagree with ‘one size fits all’ statements such as this, I also happen to disagree with this investor’s philosophy.

I’ve heard this argument many times – “It’s the land that appreciates and the house that depreciates – so buy land!”

While there is some truth in this, in previous blogs I’ve explained that not all land is created equal and I’d rather have an eight of an expensive block of land under my share of an apartment block than an acre of land in the outer suburbs where there is little demand and substantially less capital growth.

But there’s more to it that that…

The case for apartments as top performing property investments

Many moons ago, people lived in apartments because they couldn’t afford a house, so compromised buying or renting an apartment.

But this is no longer the case.

Put simply: significant changes in our population profile and lifestyle priorities are feeding a strong trend in apartment living.

Today, we live very differently to how our how our parents did.

The number of people living in each household is shrinking, we’re working longer, starting families later in life and we’re increasingly time poor.

This means proximity to cafes, shops transport and lifestyle amenities is becoming more important than owning a piece of land with a big backyard for the dog and extra bedrooms for the kids.

At the same time, Baby Boomers who were previously content with living in their family home after the kids had moved out, are increasingly seeking to sell their big, high maintenance four-bedroom homes so they can live in smaller, lower maintenance, lock and leave abodes again near to amenities, shops and café strips.

Add to this our rapidly expanding population and the nation’s ongoing housing shortage, and it becomes clear pretty quickly that apartment and townhouse style living will be the type of accommodation that will be in strong demand in the future.

Look at the fact…

The graphic below from property analyst Michael Matusik clearly shows that single or two-person households are on the rise, now comprising more than 60% of the housing market.

Add to this the fact that  the Australian Bureau of Statistics (ABS) suggests that there will be an additional 1.7 million single person households of over the next two decades.

They also predict that couples without children will eventually outnumber the typical “nuclear family” – and sooner rather than later, with the take-over due to happen around 2031.

This means that not only will we require more housing to satisfy the needs of our growing population, but they will also need to be smaller sized dwellings, in keeping with demand.

Of course property developers have already figured this out, and as the graph below shows, we’re building fewer traditional detached houses, opting for higher density housing instead.

Now as an investor, it’s important to understand the type of property that will be in continuous and strong demand by both owner occupiers and tenants in the future, so there is little doubt that this means turning your attention to apartments.

So which apartment?

If you’ve been following my blogs you’d know that I would steer clear of most new and off the plan apartments, which are generally over priced because they carry a large developer’s margin and hefty marketing costs.

However there are plenty of well located, established apartments with spacious floor plans for sale at a price point many investors can afford.

One more thing: I’d look for an apartment with a “twist”; maybe one that you could add some value to through renovations.

What makes a great apartment investment?

For mine, a great property investment is one that has wide appeal to owner occupiers (even though I’m not planning to sell) because they’re the home buyers are the ones that push up prices of properties similar to mine.

This means I look for apartments that are:

• In an inner-suburban location, ideally within a 10km radius of the CBD. Of course I’d avoid our CBDs where there is an excess of new and off the plan properties.
• Within walking distance of the amenities young people want to live near, such as shops, restaurants and cafes and public transport.
• Situated on a desirable tree-lined street in the neighbourhood, away from busy roads.
• Architecturally unique. Generic, high-rise style apartment complexes are generally over-supplied and have no unique factor to get either tenants or future buyers all that excited.
• More intimate in size: I’m talking about the size of the complex, not the size of the property. Aim for a block that has less than 20 apartments, and avoid ‘mega-towers’ that have dozens upon dozens of the same apartment type.
• Well soaked in natural light, with a pleasant view if possible.
• Kitted out with some sort of unique-factor. It could be a design feature or something as simple as thoughtful storage solutions. These types of features will set your apartment apart from the competition.

In summary

Although demand for houses will continue strongly in the future, there is definitely a shift towards apartment living in our cities.

Sure some people will remain motivated to move to the outer suburbs in order to buy a house, but more and more are choosing to live close to work and that means living in an apartment.

This solid and increasing demand means apartments make great investments with stronger capital and rental growth than houses out in the sticks.
And this trend is only likely to accelerate in the future.

Michael Yardney is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia’s leading experts in wealth creation through property. Subscribe to his daily Property Update blog.