It is often said that the value of a property is in the land, but this isn't necessarily always true.
Investors are always asking ‘are apartments a good investment?’, and there is no doubt that the sentiment from industry experts and advisers is more positive compared with 20 years ago.
Experts have always argued that the value of real estate is in the land, so purchasing a house and land is therefore the smarter option. In many instances this is correct, but there are benefits to investing in an apartment too.
The perception of apartments in the Australian property market is changing and over the past two decades I have watched the market rapidly transition from trepidation to fully embrace apartments and the unique lifestyle and investment opportunities they present. Throughout my career, I have overseen the sale of more than $1 billion worth of off-the-plan apartment sales and I am an advocate for apartments as a worthy investment option.
This might seem strange, considering I work for one of Australia’s most successful home builders but this is the reason why the ABN Group is now building and selling apartments. Apartments continue to grow in popularity and the ABN Group is committed to providing diversity of choice.
I don’t believe apartments are a better investment than house and land – I am of the opinion both provide good investment opportunities depending on the property and your own investment goals. But I don’t think investors should look at apartments as a second rate investment when compared to houses. Both have the potential to reap good rewards.
So why are apartments a good investment?
I attribute it to a number of key reasons based around changing demographics, location and affordability.
The Australian Bureau of Statistics (ABS) has predicted the average household size in Australia is due to decrease from 2.6 people per household in 2006 to between 2.4 and 2.5 people per household in 2031.
While family households are projected to remain the most common household type in Australia, lone person households are expected to experience the greatest percentage increase. This is related to the ageing Australian population and the fact that older women, in particular, are more likely to live alone than other people. Conservative ABS forecasts predict lone households could increase by 63 per cent by 2031 with some scenarios predicting the increase could be as high as 91 per cent.
Although family households will remain the dominant household type, not everyone is looking for a four-bedroom house on a quarter-acre block. The great Australian dream is still alive and well and, although building houses will always be the core focus for the ABN Group, it is now widely recognised that there is a growing demand for different housing types.
Urban sprawl and the increased scarcity of land close to the CBD is driving the creation of quality infill projects with higher density plus suburban apartment projects are also growing in popularity.
Affordability is also a major driver. Apartments provide the opportunity for people to buy a property in an expensive location for a much more affordable price, without the hassle of maintaining gardens and outdoor areas.
Plus, if you are investing in an apartment off-the-plan it provides the opportunity to secure a property now with no more to pay until completion providing extra time for you to strengthen your financial position. In some circumstances the apartment might increase in value between the date of purchase and settlement but it is risky to assume this will happen and investors should treat this as an added bonus, not a certainty. I have always maintained property investment is for long-term rewards, not short-term risks.
Apartments also provide a unique investment opportunity because they generally provide a higher rental yield since the ratio of rent to value is typically higher than that achieved for houses. This is important for investors who require a high level of cash flow to supplement their loan repayments.
So, there is no doubt my answer to the question ‘are apartments a good investment’, is absolutely yes. But as with any investment, it depends on the actual property and a wide range of factors including price, location, quality and your own investment objectives.
Peter Gianoli
Peter Gianoli joined ABN Group in 2011 to establish Investor Assist. Peter has more than 15 years of experience in the property industry working across some of the country’s premier development projects and throughout his career has overseen the sale and settlement of properties worth in excess of $1bn. Peter is also a highly sought after public speaker and has educated audiences throughout Australia and around the world on topics including property marketing and investment.
