As we enter the next phase of the property cycle, don't fall for the myth that location is all that matters. Explore the critical differences between investing in units and houses, backed by data and expert analysis. Understand supply and demand dynamics, approval trends, and unique opportunities in various property types. Make an informed investment decision for 2024 with insights from Search Property.
.webp)
As we enter this next phase of the property cycle, I don't want you falling for this exact trap.
People telling you that: “Hey, location is all that matters. Just buy anything you can, because everything will go up.”
In this case, what I'm talking about is: Apartments.
Yes, I'm a fan of apartments in certain locations, but I want you to really pay attention to some of the statistics and data in this blog, because it might save you from making the biggest mistake when it comes to buying property.
So if you're interested in what my thoughts are, definitely keep reading.
When it comes to apartments versus houses, a lot of people often get caught in the middle, where they're like: “I don't know which one to make a move on, so I'm not going to make a move at all.”
At the end of the day, parking your money in assets is going to be so much better than just saving it, because we all know the dollar is dogsh*t. It keeps losing its value, and inflation is built into the system, so that it continues losing value.
Now, the age-old argument is that you should buy in Blue Chip areas such as in:
It doesn't matter what you buy—just buy in the right location.
You may have heard this yourself and you've gone: “Yeah, that makes a lot of sense, because location, location, location.”
Location is only a piece of the puzzle, because although you can have the best location, if I was to give you further information like: “Hey, by the way, there's going to be about 3,000 units coming here in the next 2 years, yet the amount of demand we have right now versus what we forecast as well, is going to be significantly less than that…Do you still think location matters?”
I would go on to say: “No, it doesn't, right?”
I try to simplify a lot of things and this is simple economics: supply and demand.
For example: at the moment, because borrowing capacities are being restrained by high interest rates, people can't get into the location they want.
So you might go: “Well, I can't buy a house for $800,000, but I can get an apartment for $500,000. What I've been told is the apartment should still continue performing really well, and that's why I'll probably go for that.”
However, the reality is, you need to look at incoming supply very differently when it comes to apartments versus houses.
When it comes to housing in an established area, it's very difficult for you to just go and knock down an entire street and build new duplexes and townhouses.
It's very difficult to do this, and even then, if you were to knock down 10 houses and you said, “I'm going to build townhouses, and every house apparently has enough land to do that,” the max you're probably going to get is two or three on each piece of land.
This means 30 new places that people could buy or rent.
Now, when you compare that to knocking down an entire street with 10 blocks, you're probably able to go up about 6 to 8 floors and then you can go out wide enough to be getting to numbers closer to hundreds and hundreds, if not, thousands of units in that same location. So it's very different in how you assess both.
Now that we've covered demand when it comes to interest rates, you need to also focus on supply when it comes to approvals and what we're looking at in the pipeline.
I'm going to bring this all together in a really simple way, so that you can make your own decision when it comes to which is better.
At Search Property, our buyers' agency focuses on:
So I technically have no bias in this. In fact, in my own portfolio, I have all three and I can see where one performs better than the other…and yes, that's when location does matter.
If the only way you're going to get access to that location is through an apartment that has water views, it's unique.
If more units come up, and the only way that I can get this water view is from my apartment or from my block, it means my block should be far superior to anyone else's.
Could we stagnate in growth given that there are more units going up?
Well, yes definitely! I've seen that in my own portfolio. When that supply has dried up, it's caused prices to go much higher.
When we compare this to some of the houses that I've got, I would definitely not be picking an apartment anywhere near the houses that I'm picking up.
Why? There are two things:
Number one: Due to the demand, the houses are in locations with good land size and are also close to busy shopping centres and schools. This means that, at some point, if the government in that area (the LGA) goes in and says: “We need to create more housing,” they can’t simply build more houses. Instead, they will have to “go into the zoning and change it up so that they can allow for apartments to go higher.”
When this happens, you’ll have a developer come and pay you some ridiculous money. This is how a lot of people in Sydney and Melbourne have become rich—by holding their property for 20 or 30 years until a developer comes in and pays them out a massive amount so they can build more apartments up in the sky.
So this is number one why I wouldn't buy an apartment in the area that I'm buying because:
Number two: The house will hold more value for me personally in that location because the demographic also wants to have houses. They don't want units. This is going to change over time as affordability becomes a bigger concern over the next 10 years.
Now, let's look at some of the data that's just come out, suggesting that we may have a big problem when it comes to supply.
Approvals have been declining since the first increase in the cash rate in mid-2022, and this trend appears to be continuing into the start of 2024.
“Building approvals nationally fell by a further 1% in the month of January 2024,” stated Housing Industry Association (HIA) Chief Economist Tim Reardon.
3 months ago, the Australian Bureau of Statistics released its monthly building approvals data for January 2024 for detached houses and multi-units covering all states and territories.
“Detached home building approvals fell by 9.6% in the month of January 2024. This decline leaves approvals 5.3% lower in the three-month period to January compared to the previous year,” added Mr. Reardon.
Multi-unit approvals have increased by 14.5% in January from very low volumes in the previous month. The three-month period to January saw multi-unit approvals decline by 15.4% compared to the previous year.
The low volume of building approvals throughout 2023 will see the volume of homes commencing construction continue to slow this year. The rise in the interest rate is the primary cause of the slowdown in approvals.
Now, if I just left you with the fact that we've declined by a further 1% in housing approvals, you would say: “Hey, that's great! Let me just go buy anything I can.”
However, when I break it down and say: housing has actually declined by 9.6%, but multi-units have increased by 14.5%, you would go: “What the hell does that mean?”
The reality is that we've got so much more in the pipeline for approvals coming in for units than there are for houses.
This is because if I go in to put an approval for a house:
However, when a developer goes in to put an approval for units, they go in and say: “I'm approving the entire thing,” which is a couple of hundred, if not thousands, of units at a time.
What we can see here is the monthly building approvals in Australia over a three-month rolling average.
In the green, we have houses.
In the black, we have others, which would refer to, say, units.
In this case, houses are looking a lot higher, but both are declining quite rapidly.
Now let's look at the recent monthly housing approvals by type, seasonally adjusted.
What we've got in the blue is total.
What we've got in the yellow is attached homes.
Then what we've got in the orange colour is houses.
What we can see is that the total is going down very, very quickly. In fact, we haven't really seen these numbers for the better part of 10 to 12 years, which is absolutely absurd.
Further to this point, when we talk about apartments versus houses, we've got to look at the annualised change in house and unit values over the past 10 years.
This one is going to be very scary, especially if you've bought an apartment or got convinced by someone that they're both the same.
In Sydney, prices for houses over the last 10 years (annualised) have grown by 7.4% annually.
However, when you look at Sydney for units, it's grown by 4%, almost half.
The same could be said for Brisbane, where it comes in at 6.5% for houses versus 3.5% for units. And when you look at combined capitals, it's 6.3% for houses versus 3.2% for units.
It’s clear that even if you annualise it over the 10-year period, you're going to find that houses are outperforming units.
However, this is such a general statement, and I know it can sound like sometimes I'm going around in circles, but the reality is you can't just look at these numbers and say:
“Oh well, approvals are down, that means I can buy anything.”
“Oh, Sydney's going up, that means I can buy anything.”
Or…
“Units are really bad because they've annualised lower returns. That means, I should never buy a unit. I'm just going to buy houses.”
It is general statements like these that can get you in a lot of trouble, and usually, these general statements make the headlines. The headlines are what most people look at, and that's what they base their investment decisions on.
I hope from this blog, you've gathered the fact that if you're looking at apartments versus houses, it seems like the clear winner is houses, except in a few unique situations.
If you can pick up a unique apartment, you probably will see more growth in that than you will in some of the houses in your portfolio.
I've had the same thing happen in my own portfolio. For clients who can't purchase a house because it's too expensive in certain areas, they're picking up townhouses and apartments that are unique and can offer something different from a cookie-cutter house or a cookie-cutter apartment. They are seeing significant growth as well.
In some cases, the yields are much higher on the apartments and the townhouses, and it's something I urge you to actually look into if you're interested in doing the data and the research yourself.
If you're not really interested in that and you just want to execute with speed, you can say: “Hey, I'm going to be hands-off. You do the work for me. I trust you and your team.” Then definitely contact me at Search Property.
You can also book a completely free discovery call with my team.
If you're after strategy sessions, then definitely email me at Team Search Property , and we can definitely have that, especially if you're in Sydney, because in Sydney we have started to hold strategy sessions in person.
I hope you guys have enjoyed this blog.
I'll catch you guys in the next one!
Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
.png){kind=icon}
.jpg)
.jpg)
%20(1).jpg)
%20(1).jpg)
%20(2).jpg)
.jpg)
