“To invest in housing or units”, that is the question…
Whilst there is no right or wrong answer, the answer to that question divides many property investors. We investors need to determine the best strategy to suit our requirements. If the numbers stack up, then go for it!
Many investors believe that a house is a better investment due to the land appreciation factor. However housing affordability challenges has seen units become more popular in recent years. In January 2014, the median price differential between houses and units in Sydney was $171,000.
There is not a great difference in growth rates between the property types with median house prices increasing 81% and unit 72% over the last 10 years.
It is important to recognise the difference between low-density unit complexes (e.g 20 units in a block) and high-density unit complexes (e.g. high-rise towers).
Investors need to be careful when costing owner’s corporation fees in high rise units. Lifts, pools, gymnasium etc may seem a great idea, however they can add significantly to maintenance costs; especially if major works are needed.
Generally, lower density complexes perform much better.
Investors who prefer houses are looking for high capital appreciation with the land. This is dependent on choosing well where land is in scarce demand. Purchasing an existing house and land can offer more options to add value such as subdivision, adding a granny flat, renovating to add rooms etc.
Low-density complexes close to or within the CBD provide a better land appreciation return to investors as the number of investors to land appreciation ratio is much smaller than high-rises which could have hundreds of units / investors to ‘share’ the land appreciation.
Houses provide the investor total control regarding decisions and maintenance. Units require approval from strata managers and / or other unit holders, which can be quite restrictive.
Units offer lower maintenance costs due to the sharing of maintenance shared with fellow owners. Some however consider the requirement to contribute regularly to the strata similar to housing maintenance costs. If the right house is selected, maintenance costs could be minimal for a large period of time.
Houses generally require more attention of the investor, with maintenance and / or tenancy issues. The benefit for unit owners is that the maintenance, care of the building and surrounds is undertaken through the body corporate. Many have manager who take care of tenancy challenges.
Units tend to provide a greater investment yield compared to houses however houses usually generate a larger weekly rent than units (in same area).
Whichever property type is preferred, investors should consider, within budget, how the property will perform over time, potential growth rate and re-sale demand.
Generally speaking, if you want control over the property, 100% of land appreciation value, more options to increase value; houses may be the preferred option. If you want a lower cost, higher yield and low maintenance (involvement) property; low-density units may be preferred.