The key to building a successful property investment portfolio is to own the type of property that will be in continuous strong demand in the medium- to long-term, so as to maximise its capital growth.
I’ve often said that successful property investors are a bit like chess players – they must think three or four steps ahead. They ask, “What type of property will be in demand in the future?” not only by tenants, but by owner occupiers, because they drive the property markets.
That’s why I would only invest in our major capital cities as they have broad-based economy and a wide range of potential owner occupiers to buy properties and tenants to help pay your rent.
So what type of property should you buy?
Once considered the Great Australian Dream, the family house on a quarter acre block is no longer everyone’s ultimate property choice. Historically houses enjoyed much better capital growth than apartments and house prices were driven up by a greater demand for houses than apartments, scarcity of new land for housing developments, higher quality of stock and the urge to build bigger and bigger homes and the Great Australian Dream to own a house with a front and backyard.
That’s why I invested in houses when I first started investing. But that was almost 40 years ago and times have changed, how we live has changed and where we want to live has changed. Today medium density properties – apartments and townhouses – make great investments and in general appreciate in value equally if not more than houses in our capital cities.
This is of course in part due to affordability, as units offer a much more affordable alternative housing option than houses. But it’s much more than affordability.
Significant changes in our population profile and lifestyle priorities are creating a strong demand for apartment living. Today, our lifestyles are vastly different to those of our parents. We’re working longer, we’re increasingly time poor and we’re starting families much later in life. This means proximity to work, transport, entertainment, cafes, shops and beaches is becoming more important than owning a piece of land.
In Australia’s capital cities, apartments are continuing to improve in design and size and are generally closer to the CBD than affordable houses. Of course there is still demand for houses with a front and backyard, particularly from families with more than one child, yet there is definitely a shift towards apartment living in our cities.
More single households, smaller families and the impact of the baby boomers downsizing means this trend will continue in the long-term.
People are getting married later in life and apartments suit their busy lifestyles, and when a baby comes along, they will often stay in their apartment or buy a bigger one in the same location.
And don’t forget as our baby boomers move into retirement they will also significantly increase the demand for townhouse and apartment living. Low maintenance, secure “lock and leave” living is a priority for these buyers.
According to a recent report from RP Data, capital city units and apartments only accounted for 25% of all home sales 15 years ago. Today though, medium and high-density accommodation makes up around 35% of all home sales.
Now that’s an interesting trend, isn’t it?
In our two most densely populated capital cities, RP Data found the proportion of unit sales is significantly larger. For the month of August, Sydney and Melbourne unit sales were at 43% and 37% of all dwelling sales respectively.
A similar trend was noted in Canberra and Darwin, where unit sales accounted for 38% and 37% respectively. RP Data says the commonality between the four cities is that they boast the most expensive real estate in terms of capital city markets.
Because I adhere to my rule of only buying properties that are in continuous strong demand, for the last 15 years or so I have only been investing in apartments or townhouses. The only houses I buy are old dumps – one’s that I pull down to build new development projects.
I suggest you consider doing the same.
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