So, do apartments increase in value more than houses?
It used to be generally understood that houses increased in value at a greater rate than apartments, but it's not always so anymore. It's definitely possible for some apartments to increase in value more than some houses. Here, are some examples to show you how this can play out.
A lot of investors, in particular, think that it's important to buy a house because a house is on land and land is actually what grows in value. In some inner-city areas however, that is not necessarily the case. The smallest, crappiest house in an inner-city suburb can often perform vastly differently to a good, two-bedroom apartment or a good one-bedroom apartment or even a good three-bedroom apartment. The reason for this is that the smallest, crappiest house will often have compromises that mean that very few buyers really want to own it. It might be on a main road, it might be on a tiny block of land, it might be completely unrenovated and cost an absolute fortune to renovate it. There could be any number of reasons why there's only a very small buyer pool for that property.
Conversely, an apartment that might cost a similar amount of money might have a lot of buyers interested in it. As time goes on, the crappy little house will have fewer buyers interested in it when you go to sell, whereas the apartment will still have lots of buyers. What that means is that apartment can grow in value at a much greater rate than the crappy little house. Now, these properties have loads of character and loads of uniqueness or scarcity about them. They may be more scarce than houses in the same suburb, in which case, they might not actually be worth more than a house, but they might grow in value at a greater percentage year on year than the houses do.
In the last two examples, I'm talking about properties in the same suburb, so where you're looking at a house and an apartment in the same suburb. The other example of where apartments can increase in value more than houses is when you're buying an apartment in an A-grade blue-chip suburb, and you're comparing that to a house in a lesser suburb, one that doesn't perform as well. So, do apartments increase in value more than houses? Well, a great apartment in a great suburb can go up in value a hell of a lot more than a great house in a not-so-great suburb.
As houses become increasingly unaffordable for Sydney siders, I think we're going see a trend towards more apartment living. And what that means is that we're going to see more families living in three-bedroom apartments. We're also going to see more first-time buyers stay in their apartments longer before upgrading. And then, there's a traditional downsizer market which is actually increasing as more Gen-Xs and baby boomers have their kids fly the coop. Downsizers are wanting to move back into the inner city areas in particular, to enjoy the lifestyle benefits.
Here are some things to watch out for:
One: Overdevelopment. You do not want to be buying into new complexes where there's a lot of apartments that are all exactly the same.
Two: Lack of scarcity.
Three: Poor design and construction quality. Construction quality is really difficult to work out if you're buying off the plan or brand-new, but poor design is pretty obvious straight-up, and I'm looking for flow and balance, good floor plans and good features.
Four: Even a great complex can have some pretty ordinary apartments in it. Here is what to look out for when buying an apartment Buying an Apartment Checklist
Bottom line, in urban areas, where land supply is exhausted and when prices are being pushed up, the demand for quality properties is going to continue to increase, and this means that in many instances, apartments can go up in value more than houses.