As house prices have heated up over the past two years, apartments (units) are now becoming more attractive, particularly to first-time property investors.
There’s no doubt that the estimated 15-20% increase in house prices in many cities in Australia is pushing property investors to the more affordable segments of the property market.
Late last year when the median house prices in Sydney pushed above the $1 million mark, the Wealthi Research Team made the case for affordability and density as the key factors that will drive demand for units (apartments).
“Flight to affordability will take over the flight to space as many home buyers and property investors seek more affordable units and townhouses rather than overly expensive houses.”
Domenic Nesci, Wealthi co-founder
And we are seeing signs of this happening now.
CoreLogic reported that house prices in some Sydney suburbs have fallen in the previous months to February. A similar picture is seen in Melbourne where some inner-city house prices dropped by about 4-5%.
This means that buyers who got emotionally driven by the fear of missing out (FOMO) when prices were running high are now becoming more objective and logical with their buying decisions.
People who may have considered shelling out $1 – 1.5 million on an old existing house last year could be looking at investing $750,000 – 850,000 on a brand new unit or apartment instead.
Interest rate rise can bode well for property investors
With interest rates expected to rise this year, homeowners who borrowed too much may face a heavier mortgage burden than property investors who can rely on the rent income.
Peter Esho, co-founder at Wealthi, was recently quoted in a media interview where he said, “In many cases, the increase in rents offsets the rising interest cost for investors. If you buy a good investment, which can grow its income faster than rate rise increases, you’ll actually benefit from interest rate rises.”
Return migration boost demand for affordable accommodation
And speaking of good investments, with domestic and international migration starting to pour back into Australia, there are already signs of rising demand for affordable accommodation.
For one, international students who make up a big portion of tenants in units and apartments, are already back signing up for long-term rental agreements.
There are reports of developers beefing up their rental portfolios aimed at international students both in Sydney and Melbourne.
Another group of people driving the demand for units and apartments is the highly mobile segment of the community. Usually, these may include singles and couples who prefer the affordability, accessibility and amenities offered by units and apartments.
Most of the time, these people prefer to rent near their place of work. Or they want a rental accommodation that’s easy to maintain rather than a big house that requires high maintenance.
And with many people still eager to travel, they would rather rent a unit at an affordable price rather than a house with a high price tag.
Another key factor behind the attraction for units (apartments) is their re-sale prospects.
Eliza Owen, head of research at CoreLogic says “As affordability constraints limit growth in the detached house market, this is gradually deflecting demand towards higher density housing options.”
This means as a property investor, you may have more chances of re-selling a unit (apartment) rather than a house as more buyers gravitate toward affordable properties.
If you would like to discuss the Australian property market in more detail, please reach out to the team to organise a time to have a conversation about how Wealthi can help you build a successful property portfolio.
Eva Diaz is a communications specialist with focus on the financial markets. Connect with Eva.