A major trend in the Australian property market over recent years has been the growing popularity of apartment living. This trend is underlined by the fact that during the December 2016 quarter, the number of new apartments completed in Australia outnumber houses for the first time - 28,527 new units compared to 28,102 new houses.
The growing love affair with apartment living is being driven by two key factors - affordability and demographics.
For many young property buyers, apartments offer a very affordable entry point into the Australian property market especially in the boom markets of Sydney and Melbourne.
Renting an apartment is also more affordable than renting a house and this economic reality has resulted in a growing number of property investors deciding to buy off the plan apartments because they know there will be a strong rental demand for this type of property.
Demographic changes are also driving the growing popularity of apartments. In particular, there has been a surge in more people living alone while the overall size of households are getting smaller which are combining to make apartment living a lifestyle of choice for people not wishing to live in large high maintenance homes.
At the same time, the ageing of our population is resulting in a surge of baby boomers and empty nesters deciding to sell their large family homes and deciding to down size to an apartment. This proving financially attractive because many of these property owners can sell their existing home and down size to an apartment at a profit that can help fund their retirement.
These important affordability and demographic factors have seen apartment living growing in areas that previously showed resistance to this style of living such as Perth in Western Australia. For many years, homes with a large back yard dominated the Perth property market. However, this is now rapidly changing with apartment developments now moving from outside their traditional home of the Perth CBD into the outer suburbs such as Joondalup, Clarkson, Midland, Armadale and Rockingham.
Buying an apartment can be a great lifestyle choice and achieve pleasing levels of capital growth providing the buyer undertakes research by avoiding the following pitfalls.
- Buying an apartment in a location which is not attractive to tenants i.e. not close to amenities such as shops or transport.
- Not checking the track record of the developer to ensure they will deliver on what they are promising in terms of quality and completion time.
- Buying into an area where a large number of apartments are under construction. An oversupply of apartments in a particular area can lead to depressed property prices until the excess supply is soaked up by the market.
- Selecting an apartment based upon advice of friends or family rather than seeking independent information.
- Not properly checking the actual size of the apartment. When buying an apartment you are paying for the actual square metre so every square metre has a value.
- Deciding to buy an apartment close to their owner occupier home rather than looking at investment opportunities throughout the metropolitan area.
- Buying an older apartment which can drain your finances through maintenance costs.
- Selecting a complex with a very high level of investor owners. The greater number of owner occupiers in the complex, the more likely the complex will be well maintained.
- Not undertaking a full assessment of the true cost of buying and holding the property. For example, if the property is an apartment, there are additional cost issues compared to buying a stand alone house such as strata fees. Purchasing an apartment with very high strata fees that they will eat into the cash flow of the owner.
- Buying an apartment with the view to a quick return rather than viewing it as a long term investment and stepping ladder to purchasing a portfolio of properties that will fund their retirement.
Read more by Shane Kempton:
Boosting rental returns in a climate of rising interest rates
New WA government needs to correct property market distortion
Eastern states investors to 'kick start' the Perth property market in 2017