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Units No Longer Housing Poor Cousin

- Monday, October 12, 2009

The capital growth associated with apartments has virtually been on par with detached housing over the last five years, putting to bed the myth that houses appreciate at a faster rate than units.

Many home buyers and investors have adopted the philosophy that houses will generally outperform units. Most would argue that the underlying value of the land associated with a house is the real driver of capital growth. However over the last five years there has been little difference between the two property types based on the rate of capital growth. Nationally, houses have recorded an annualised rate of capital growth of 4.8 percent while unit values have increased by 4.7 percent per annum over the same period.

The equivalent level of capital growth associated with units is a relatively new phenomenon. Over the last ten years houses have outperformed units by about two percent per annum.

The improvement in capital growth associated with units may be attributable to housing affordability. Based on the national house value ($506,000) and national unit value ($409,000), units are about $100,000 more affordable than houses; a fairly compelling differential for many home buyers.

Another reason for the improvement in unit values is the changing demand side factors in the Australian market place. More baby boomers are downsizing from their empty nest; twenty and thirty something’s are more interested in living in the same location as where they work and play; and the lack of purpose built student accommodation has seen demand for units increase markedly from the overseas student sector.

Developers have responded accordingly, introducing units designed for a very specific segment of the market: luxurious boutique apartments for the empty nesters, smaller one and two bedroom apartments with minimal kitchen facilities for the young professionals and tiny apartments with communal social areas for the student market are just a few examples.

Additionally, units tend to provide higher rental yields than houses. This is partly due to the fact that unit developments are typically located in areas that have high rental demand: close to major transport networks, employment nodes or retail centres.

With population growth now projected to be well beyond expectations (Treasury recently announced that the Australian population is projected to reach 35 million in 40 years time; 7 million more residents than was originally forecast) and strategic land supply likely to remain constrained for a long time, the demand for well located unit projects is likely to increase. .

Source : RP DATA

David Carruthers is a credit representative (Credit Representative Number [400226]) of BLSSA Pty Ltd (Australian Credit Licence No. 391237).