Are Apartments a Good Investment? - July 2024

By Guest Blogger, Mathew Tiller

Head of Research, LJ Hooker Group

Traditionally, detached houses have been the preferred choice for Australian homebuyers and investors. However, affordability constraints and changing lifestyle preferences have led to a growing preference for apartments among various buyer segments. This shift has integrated medium- and high-density living into local communities, catering to diverse household types, cultures, and social backgrounds. The demand for affordable housing options has surged in metropolitan areas of our capital cities, fuelled by rising costs and diminishing availability of developable land.

Why Are Apartments Gaining Popularity?

According to the Australian Bureau of Statistics (ABS) Census, there has been a notable increase in the number of people living in apartments over the past two decades. In 2001, 1.6 million people, or 8.8% of the population, resided in apartments. This number grew significantly to 2.4 million people, or 10.4% of the population, by 2021. The number of apartments also saw a substantial increase from 923,000 in 2001 to 1.3 million in 2021. Apartments now constitute 13% of all private dwellings, up from 11% in 2001. This shows a clear trend towards apartment living with the two key drivers being;

• Affordability: Apartments present a significantly more affordable option compared to houses, making them attractive for first-time buyers and investors with limited budgets. Nationally, apartments are approximately 25% cheaper than houses. However, this difference varies regionally. For example, in Sydney, the median house price is about $1.47 million, while an apartment costs around $855,000, marking a 42% difference. This substantial price gap enhances the appeal of apartments, particularly for first-time buyers. The affordability advantage of apartments is also evident in regional areas. In Regional NSW, houses are priced around $763,000, whereas apartments cost approximately $590,000. Similarly, in Melbourne, houses average $949,000, while apartments are priced at about $610,000. In Brisbane, houses are around $953,000, with apartments costing approximately $623,000. These significant price disparities underscore the affordability of apartments across diverse locations.
• Lifestyle Preferences: Many apartments are situated in the heart of CBDs or town centres, appealing to both younger generations and retirees for their convenience. Apartment living places residents closer to restaurants, cafes, pubs, and clubs, ideal for those who enjoy an active social life. Retirees particularly value the low maintenance lifestyle that apartments offer. They can lock up and travel without the concern of yard work or home maintenance.

How have Units Performed Compared to Houses?

Despite perceptions that apartments do not achieve significant capital growth, the latest data from CoreLogic paints a different picture. Over the past year, unit prices increased by 6.5% nationally, albeit with regional variations.

In Brisbane, for instance, apartment prices surged by 18.8% over the past year, outpacing the 15.2% rise seen in house prices. Similarly, in Adelaide, apartment prices rose by 18.0%, surpassing the 15.1% increase for houses.

In Perth, both houses and apartments showed robust growth, with apartments rising by 22.9% compared to 23.7% for houses. In Sydney and Melbourne, houses still exhibited stronger growth at 6.8% and 1.2%, respectively, but apartments also performed well with increases of 5.0% and 1.5%, respectively.

This data underscores that apartments can indeed deliver significant capital growth, contrary to common beliefs

Apartments as an investment

Apartments often offer better rental yields than houses, indicating strong rental demand and potential for steady income. This trend is especially notable in major cities.

• In Sydney, apartments yield 4.0% compared to 2.7% for houses.
• In Melbourne, apartments yield 4.7% compared to 3.1% for houses.
• In Brisbane, apartments yield 4.8% compared to 3.5% for houses.
• In Perth, apartments yield 5.9% compared to 4.2% for houses.
• In Darwin, apartments yield a substantial 7.5% compared to 6.0% for houses.
• In Adelaide, apartments yield 4.8% compared to 3.6% for houses.
• In Canberra, apartments yield 5.1% compared to 3.6% for houses.

These higher rental yields in apartments make them an attractive option for investors seeking reliable rental income, particularly in urban centres and regions with strong rental demand.

Location, Location, Location!

When it comes to buying an apartment, location plays a crucial role in the potential value growth of apartments. Proximity to public transport, shops, schools, and parks often correlates with faster appreciation in value. Inner-city suburbs in Sydney and Melbourne, renowned for their excellent amenities and accessibility, have consistently demonstrated strong capital growth.

However, not all areas are equally favourable for apartment purchases. Locations with inadequate infrastructure or an oversupply of new apartments can experience slower property value growth. Therefore, thorough research is essential to ensure you invest in a high-demand area that aligns with your investment goals.

Choosing the right Apartment

When navigating the process of purchasing an apartment, several critical considerations should guide your decision-making. Firstly, clarify your purpose—whether you intend to occupy the apartment yourself or invest for rental income. Understanding the apartment's location is paramount: proximity to public transport, shops, schools, and parks can significantly enhance convenience and quality of life.

Keep an eye on future developments in the area, such as planned transport upgrades or commercial projects, as these can boost property values over time. It's also essential to grasp the demographic profile of the neighbourhood, as different groups, like young professionals or retirees, may have varying preferences that influence demand and rental potential.

Evaluate the apartment's specific features carefully: prioritise a well-designed layout that offers functionality and space, ample natural light, and good ventilation. Look for buildings with quality construction and modern amenities like gyms, pools, communal areas, and adequate parking and storage options, which can enhance both liveability and investment appeal.

By considering these factors comprehensively, you can select an apartment that not only meets your current needs but also promises long-term value and desirability in the property market.

The trend towards apartment living in Australia is fuelled by factors such as affordability, evolving lifestyle preferences, and demographic changes. Apartments not only offer a more affordable entry into the property market but also boast higher rental yields, making them appealing to both buyers and investors. As this shift continues, we anticipate ongoing developments in urban planning and infrastructure to accommodate the growing demand for apartment living. Whether you're a first-time buyer or an investor, apartments represent a promising opportunity in today's real estate landscape.

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