28 Jun The factors to consider when comparing houses and units – Patrick Bright
We answer a question for Monica who questions the value of units over houses. As Patrick Bright points out it is not a simple question to answer because it depends on so many factors that we look at in our discussion with him.
Kevin: We had a question sent in to us from Monica. Thank you for this. Monica is simply asking whether or not houses make better investments than apartments?
I’m going to ask that question of Patrick Bright, who is a buyer’s agent from EPS Property Search. What’s your advice to Monica?
Patrick: It’s a good question, Kevin. I would say that yes and no would be the answer there, and in certain circumstances – because it depends on the market that you’re buying in, and it also depends on what the public and the buyers are demanding in those markets.
Kevin: Does it depend on not the type of market, but the market – as in the suburb – as to what type of buyer or tenant you’re going to be appealing to?
Patrick: Yes, exactly. If you’re looking in, say, a capital city, for instance – I know this because I know Sydney pretty well, I’ve been working in it for over 15 years – the market in the inner ring over a third of the suburbs, the capital growth, for instance, is better with apartments than it is with houses. If you go back 30 years ago, that was not the case. The market has changed, and it’s what the public and the demand is for, so you have got to have that aspect to it.
If you go out of a capital city, the majority of the stock out there is housing on larger land blocks. You’ll find – because I’ve looked at it – that those will do better than the apartments in a regional area.
Kevin: Those inner-city suburbs you’re talking about and some of the cap cities, we see they’re changing them as they want more density into some of these. They’re pulling down those houses and putting up apartment blocks. Obviously, that has contributed to that change as well, Patrick.
Patrick: It would have had to contribute. Yes, for sure. It’s the demand. It’s what people want. They want to live closer in. If you’ve traveled a bit and you’ve seen places like, for instance, Hong Kong and Singapore, it’s 90% apartments. People want the lock-and-leave lifestyle, they want views, they want all of that happening, and so if that’s where the demand is, that’s where the price pressure will be, and that’s where the growth will be, and that’s where the rents will be.
You have to have an awareness of the market you’re buying into, and where that market is going and where the future is of that market.
Kevin: Just to help Monica a little bit, is there a tipping point with the amount of stock? If you look at a particular suburb, for instance, and maybe it’s got 40% units and 60% houses, but there tend to be more units coming up, would that be an indicator for you that maybe it’s time to look at apartments, that that might be shifting a little bit?
Patrick: Maybe. Again, I would look at it carefully. Let’s pick on a suburb, for instance, Dee Why, which is on Sydney’s northern beaches. Now, apartments in that market, about 85% of that market is apartments, and about 15% houses. In that market, houses do better than apartments because there are too many apartments for the demand that you really want to be there.
There really isn’t a blanket rule that you can put to it. You have to really study the market, the type of people who want to be in that market, the demographics of it now and where it’s likely to go, and then make your decision based on that.
Is it like the Inner West? There are a lot of apartments being built in the Inner West, but still, terraces tend to outperform. Where you’re going to generally get better performance with an apartment is in an area often with views and some uniquenesses about it, and so that’s something you have to weigh in.
Kevin: Yes, history, of course, leaves great clues – doesn’t it – if you go back and look at the history of an area and analyze it. Over what period should you go back, do you think? Is it good enough to go back, say, three to five years?
Patrick: At least. Look, when I’m buying a property, I look at it this way. I look back even 20, 30, 40, or 50 years, and I say, “What was the prime real estate 30 or 40 years ago?” It’s generally the prime stuff today, and – guess what – it’s probably going to be the prime stuff in the next 30 or 40 years. That’s how I like to make my investment decision.
Yes, history leaves clues, but you also have to factor in where the future is going. If the future is going towards that type of product – say, a more apartment-style product – and you’re in the right location, you should do very well. Particularly, if you’re in a land-locked location, and you have something unique about it – you have got water views – that sort of thing is very appealing to the market.
Kevin: Yes, very interesting, mate. Thank you, and that’s certainly answered Monica’s question. Once again, Monica, thank you very much for your question.
Patrick, to you, thank you for joining us today.
Patrick: Pleasure, thanks, as always, Kevin.