Are apartments a bad investment in Australia?
There have been a lot of apartment buildings built in Australia in the past few years. Particularly in the major cities, Australia is building apartments in huge quantities to try and capitalise on the high price of housing, but this is causing its own set of problems. Around 667,000 apartments have been constructed since 2000 according to the Australian Bureau of Statistics, and there are plans to build another 140,000 around the country. If you’re a property investor you are probably noticing a lot of apartments on the market, but are they a good idea for property investing right now? Read our analysis to find out!
Because of the massive abundance of apartment builds that have occurred in the last 20 years, and that are continuing right now, the prices of apartments are not going up with the rest of the housing market. The supply and demand are very different, and the value of apartments is stagnating or in some locations, going down. In Sydney, where house prices doubled over the last 10 years, apartment buildings in suburbs with a high volume of high-rise apartments have gone up by less than half that of houses.
2. Build quality
One of the more worrying trends occurring with apartment builds is the decline in quality. Because of the problems with apartment value on the market, developers are looking to save costs by passing jobs on to builders too early, creating a range of function issues. Things like internal water leaks, cracking to internal or external structures, water penetration from outside, or guttering faults, have become all too common with recent builds. All of this means that buying apartment buildings can turn into very expensive investments very quickly. There is a level of legal protection that you can expect as a property owner in the case of quality problems, but they are not sufficient to provide total piece-of-mind.
3. Alternative ways to buy
Buying new builds may be risky, but what about buying off-the-plan? There are a lot of benefits to buying an apartment before the construction has finished because it gives you the ability to customise many of the features, your initial deposit will be lower, and you will have more time to save before completion. Unfortunately though, many of the issues that we have discussed are present in off-the-plan property purchases as well. It pays to do your research about the developer and builders you’re choosing to work with, because their past projects will speak volumes about the quality you can expect.
So are high-rise apartments a bad investment?
It may seem like apartments are always bad for real estate investing, which is not entirely true. To avoid issues, newer apartment builds, including off-the-plan purchases, are where you risk value stagnation and quality issues. Older apartment buildings under three storeys can provide great value. In most major cities, however, the best value you will get will not be from apartment buildings but from investing in free standing residential properties. Unless you’re a confident and seasoned investor with a sizeable investment portfolio that you can leverage if things go south, it makes the most sense to invest in other types of property such as residential houses.