ACT Canberra: houses vs Apartments for IP?

I have read in few posts about Canberra, not to touch apartment for an IP compared to houses,

Just wondering given the current depressed pricing of established apartments in Canberra due to potential oversupply is it not a value play in terms of yield?

Inviting @Jamie Moore and other Canberra legends to share their thoughts
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Avoid apartments full stop. I know several people who now have negative equity due to purchasing apartments as investments. Given that houses are still relatively affordable, it makes little sense on any level to buy an apartment.

 

Look at the number of apartments currently there, and being built, and bring this back to one of the fundamentals for property investing - supply and demand. If your prospective tenants have thousands of apartments vs. a relatively fewer number of houses to choose from (in their chosen area), they will be able to beat down the prices for the apartments.

Have you looked at holding costs for apartments vs. houses in your chosen suburbs?

 

I'm trying to sell an established one bedroom apartment now. It's not moving at all and little interest. I understand that it may not be a great investment option currently but for a stepping stone PPOR the P&I repayments at 100% loan are still lower than the weekly rent.

 

Also don't forget that you still have to pay land tax on apartments too (in addition to other costs like strata, etc)

 

The apartment of ex-James Bond was on the market for a couple years I believe.

 

I've been called many things.....but a Canberra legend is a first

I agree with @Cimbom - avoid them.

The only time I think they might be an ok purchase is if you're a first home buyer who doesn't pay stamps, gets a $7k grant and purchases into a boutique development in the inner south (possibly inner north). I wouldn't bother with Bruce, Gunghalin, etc - others might disagree though.

Cheers

Jamie

 

Now I am curious... What else you have been called

 

Due to current and potential near future supply glut its a depressed market for established apartments,
does it not make a value buy given much better yield then houses?

I have seen units in heart of town centre, near mall and close proximity to all amenities, selling at price 15% less then what it was sold at peak of 2007/8, with rental yield of 5-6%.

I have done rough calculation for a scenario,
taking low end of the current rent spectrum,
and with 48 weeks of occupancy,
2k for repairs/yr,
10% of PM cost,
LandTax/STRTA/Rates
and 5% IR on P&I loan
With NG benefit included,
YOY out of pocket holding cost is 5k


PS: I am trying to understand the rational behind what makes it a bad investment

 

I have never really liked apartments purely because I like land. As far as capital growth, there hasn't been much in certain areas.

Given that they can be little cash cows. They tend to always rent well with good yields and up until recently were relatively cheap to hold. The ACT Government had added extra land tax on apartments so in one year the land tax went from $119 to $1019.

 

How have you calculated yield? Have you taken into account strata rates and land tax? We are getting about 6% for our house in central Belconnen.

 

Yield of 5-6% is on gross,
after expense with an lvr88 P&I loan(5%IR),
YOY holding cost is -5K on a conservative estimate.

here's my assumptions
taking low end of the current rent spectrum,
and with 48 weeks of occupancy,
2k for repairs/yr,
10% of PM cost,
LandTax/STRTA/Rates
and 5% IR on P&I loan (88% lvr)
With NG benefit included,
YOY out of pocket holding cost is 5k

 

There are a lot more apartments coming online in most of the town centres. I think any current yield calculations won't mean much in the next 12-24months...

 

All good things of course

 

The strata fees can be a game changer. Make sure they're included and add a buffer. Need a scarcity factor, which im not seeing with all the cleared blocks around.

 

yeah the yield is no where near good enough to make them worth buying....roughly strata + land tax would probably = land tax on a decent block. Rates are probably half, say 1300$ instead of 2600 odd. Apartment rates and land tax are set for another big hike come July i think, see here

"Owners of units and apartments will face a big rates hike this year as the ACT government moves to bring their rates into line with freestanding houses......But that's not the end of the bill shock for people who own units. If the apartment is rented out, owners will also face a substantial increase in land tax - averaging about $480 extra a year"

480! hah...*sigh* ACT gov.

Sure, plenty of people made heaps on OTP etc early 2000's to 2010 or so, but doubt we will see that again for a good decade or 5.

I wouldn't buy either here though based on rates + land tax. unless it was the only state in aus..even then would probably buy shares

 

Never buy apartments anywhere. Unless the strata is under 1k pa. and its a two-three bedroom apartment at around 300k in the inner north, city or inner south I reckon. I've got a OTP TH in Braddon which I drew 50k equity at settlement to get a house in Brissie

 

What areas are you looking at? I would **maybe** consider looking at somewhere like Barton as the apartments there seem to have retained their value more and get more rent compared to other units. For that price point though, you could buy a house anyway which would be more of a sure thing IMO.

 

We have a small established apartment which we fortunately bought at a discount after the previous owners made a loss. The sheer supply of apartments though depresses growth. A few issues with Canberra apartments will continue to keep prices down:

- Supply (Belconnen, Gungahlin, Woden, Civic [Northborne corridor] and Greenway)
- Tax depreciation changes
- Land Tax changes
- Rising interest rates

Canberra has land everywhere and there are not many places that will have restricted supply for a long time.