The way we live in Australia has changed.
We’ve traded backyards for balconies and courtyards and this has resulted in around one in five Australians living in apartments today.
That’s up from one in seven in the 1990s.
According to the Australian Bureau of Statistics, of the ten million or so dwellings in Australia, around 10% of these are what they call attached dwelling apartments built-in capital cities over the 17 years or so to December 2018.
And the trend to medium and high-rise living is only going to increase.
So, are apartments good investments?
The answer is yes and no.
Not all apartments are the same.
Some make great investments, substantially increasing in value over the long term.
But many, especially those in high-rises built over the last 15 years or so, will continue to underperform.
Today, I’m going to dissect a recently produced report by Stuart Wemyss on the performance of investment-grade apartments, and there are some very valuable lessons in there for property investors and even potential buyers.
And of course, I also have my regular mindset message to share with you today.
- Why Stuart decided to research the performance of investment-grade apartments
- Typically, houses tend to have growth spurts that last 5-10 years
- In Melbourne, between 1997 and 2010 apartments grew at 10.7%
- Apartments can provide very attractive growth
- Between 2010 and 2020 the median growth rate has only been 2.7% -- just a touch above inflation
- Why have apartments underperformed?
- The supply has increased significantly
- With the demand keeping up with the supply, there’s not been much room for overperformance
- The intrinsic value of apartments must have increased, but the increase is being masked by all of the new apartments coming online
- Local buyers are dominating the market, which means that developers need to build a higher-spec apartment
- This leads to higher costs for the next round of apartments
- Lifestyle is going to be a big factor in the neighborhoods people choose going forward
- This will push older-style apartments – the kind that used to be called flats – into a renaissance
- It’s probably not fair to compare apartments to houses
- Houses are a better proposition if you’re in the financial position to afford one
- However, quality is always crucial. A higher-quality apartment in a desirable area might be preferable over a lower-quality house in a less desirable location
- Location does a lot of the heavy lifting when it comes to property value
- Apartments have underperformed, but they do have periods of cyclical growth
- Melbourne and Brisbane are set for the next stage of increased apartment values
Stuart’s Book – Rules of the Lending Game
Get Stuart’s special report - A performance review of investment-grade apartments
“The cost of new apartments is going to be much, much higher in the next round of them.” – Michael Yardney
“It’s hard to subdivide where everyone wants to live, in the middle ring suburbs.” – Michael Yardney
“Firstly, most of the things we worry about just don’t happen, and secondly, even if they do happen, worrying doesn’t really help, does it?” – Michael Yardney
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