Anyone who is a regular reader of my blogs will know that I have a preference for apartments as property investments.
Not only are they often more affordable in prime inner city areas than detached houses, they’re also increasing in popularity with both owner occupiers and tenants.
And if you need anymore convincing, let’s take a closer look at the Sydney apartment market and perhaps you’ll see my point.
A Sydney Morning Herald article described the city’s less pricey apartment stock as “one bright spot” in the local property market, with unit prices generally outperforming house prices during the past five years.
Apartments have outperformed.
According to RP Data, units in the Harbour City have risen by an annual average of 5.2 per cent during that time, compared to just 3.6 per cent for houses. And in the 12 months to December 2011, unit prices rose by 0.9 per cent, while house prices fell by the same amount.
Furthermore, RP Data expects that this will be a continuing trend into the future, with senior research analyst Cameron Kusher suggesting that more affordable units in particular will do better than other Sydney real estate over 2012.
This is not particularly surprising, given that affordability continues to be the biggest thorn in the side of Australian homebuyers, especially those looking to break into the market for the first time.
What about rents?
Let’s look at Sydney’s rental market.
If you thought the city was expensive when it comes to buying property, spare a thought for its tenants who are faced with the prospect of steep rental hikes over the next 12 months due to some of the tightest vacancy rates on record.
So now we have two major forces combining to drive the already growing demand for affordable apartment stock in New South Wales’ capital and hence the experts are largely in agreement; the incentive to buy rather than rent and to buy an entry level unit, will be one of the major factors to push lower priced apartment values up in Sydney.
At least in the short term.
Not just about affordability
While affordability is obviously a compelling reason to choose an apartment over a house, there’s one other very good reason an increasing number of Sydneysiders are turning to more compact accommodation options.
They like living in them!
”There’s no doubt about it, people are embracing apartment living,” says senior economist at Fairfax-owned Australian Property Monitors, Andrew Wilson.
Of course this is great news for investors and indicates that there should be some excellent opportunities to reap the rewards that come with a market in transition, such as the unit market in Sydney.
But as I always caution – you can’t just buy any apartment (regardless of the city in which you invest) and expect it to go gangbusters overnight.
You need the right ingredients to ensure above average long-term gains.
In Sydney that means, something close to public transport, within easy reach of the CBD and in a suburb that has traditional appeal and good amenity.
And one more word of warning; many Sydney real estate experts are suggesting there will be a notable increase in the popularity of new apartment stock, particularly purchased off the plan, given that buyers for these types of dwellings are being offered an enticing exemption on stamp duty if construction hasn’t yet commenced.
I would advise investors to avoid this temptation in favour of something that is established and has value add potential.
Sure, the stamp duty exemption might be hard to resist, but at the end of the day you have to weigh up how much you really stand to save when you consider that off the plan apartment prices are often loaded with hefty developer margins.
With increasing demand and nowhere near enough stock being built to cater for the would-be buyers scouring Sydney’s apartment market for that special something – not to mention the rapidly growing rental yields – this is definitely one sector of the Australian housing market for property investors to watch.
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