Why I think (good) apartments are poised for enormous growth

I won't even address the distinction between good / bad. We all know what's good and we all know there's a lot of trash out there, so let's leave that conversation for another day.

1) First and foremost, I've mentioned this quite a lot before but there is this narrative that's developed recently about detached housing being the only game in town now...not that it's preferred at this moment, but rather it's the new be all and end all. Like you could just delete apartments off the face of this planet and we'd be no worse off. This assumes we have fixed our supply problem and we most definitely haven't.

2) The demographic that favours apartments is locked out. In countries where there is still relatively high levels of immigration we're seeing broad-based growth across all property types. That says a lot.

3) The price differential between units and houses are growing daily. At a certain point this becomes untenable and some people are going to revert back to apartments, as has been the case since almost forever.

I'm sure there's more, but when I see FHB's writing off apartments not because they don't like them but because their current lack of growth is some sort of proof that they are bad investments I shake my head.

If you can buy a detached house, certainly go for it. But if you can't and refuse to look at apartments because apartments are dead and never ever ever ever coming back, then you're a damn fool IMO.

Maybe I've been browsing Whirlpool too much recently and the negative attitudes are taking a toll lol. All I see right now is great value being ignored and a bunch of people who will be back in 24 months to complain about how apartment prices are also too expensive now. I only own one apartment in my whole portfolio so I have no vested interest in spruiking apartments, it just annoys me when I see FHB's whining and not taking advantage of opportunities right in front of them.

 

Stuart Wemyss talks about it here.

Report: Performance review of investment-grade apartments

I have an apartment, not quite investor grade unfortunately, so I'm hopeful to see some increase as the last decade has been terrible for growth.

 

Over long term it is only the land that appreciates.
The building is a depreciating assets with a limited life.
Generally apartments date faster and more than houses.
People like new apartments ...hence they date.
Houses don't age as much
However over a long period the land becomes too valuable for a obsolete apartment block or a house that does not fully utilitise the site.
At that stage the buildings is removed.
(Look at the city plans over a period of say 200 years)

 

Many apartments in desirable areas in Sydney are still around 2017/2018 prices. If you can stand to hold for around 24 months and lower rent, then it is worth looking at. Especially if they have "houselike features" (eg courtyard, outdoor entertaining area), extra storage, can add value to put in home office etc.

 

But 100% of what you said was also true pre-coronavirus. It's not like everything you said magically came into reality 1 minute after the virus left Wuhan.

I mean there's a lot to say about this, but my point is simple: houses are the best, but if you can't afford one, get an apartment. It didn't suddenly become this utterly worthless asset class the minute the virus landed.

 

Most apartments are trash. If you can't afford a house stick to stocks.

 

So you think the average person is more likely to succeed buying stocks compared to a leveraged investment in a high quality apartment?

 

It's a housing asset that gets great leverage and there's tonnes more money floating around, so it should do well in the cycle. Rising tide lifts all boats.

In terms of comparative performance, we'll likely see an increasing divergence in cap growth rates between land and apartments over this cycle. Much of this may have already happened though, as houses have shot up while apartments haven't done the same - leading to a big current differential in rates/prices.

I.e. landed bigger properties are hot property. Part of this is changing buyer preferences and flexibility improvements, aswell as increased utilisation of land from code changes in Sydney. In saying that, you have a waterfront apart, the intangible factor would get additional premiums. If good quality means apartments with rare intangibles (like the Bondi apartment) - then yeah, cap growth rates there will likely outperform.

As an anecdotal aside, where I live, right now, Sydney is pouring in rain and if you want to inspect a home with land...you may be waiting outside to simply get in. If you want to inspect an apartment, the agents waiting in the rain looking for someone to show the apartment to.

 

Definitely. Wealth inequality is increasing in Australia. Just because houses become more expensive doesn't mean that apartments will achieve anywhere near the same growth. By their very design (high density) apartments are built to be affordable. In some countries (South Korea) apartments are extremely desirable. In Australia people prefer living in freestanding houses or will compromise to townhouses if a house is no longer an option.

 

To be fair he did say most.

A high quality apartment is probably going to fetch a high quality price hence the comment of not being able to afford a house still holds.

I enjoy living in an apartment but there is no way I would buy one.
The ones ones I've enjoyed living in have exhorbitant strata fees, the ones that dont are usually so cheap to rent there is no complelling case to buy one and venture down the rabbit hole of strata issues.

I'd counter the argument somewhat by saying that those locked out of the country at present were probably only going rent anyway (new migrants, students etc) so rents may be pick up once things open, but I cant see the case for a boom in generic 1 or 2 bed apartments.

 

Yes but I also did put the word "(good)" in the title of my post and preface my opening post with:

I won't even address the distinction between good / bad. We all know what's good and we all know there's a lot of trash out there, so let's leave that conversation for another day.

I mean obviously a good apartment is going to do better than a bad one, I didn't think it was necessary to debate that...

 

I think once affordability starts to bite again, (it's only a matter of time), apartments in high demand areas in smaller blocks will become all the rage again and will see a price spurt and sustained growth. Sydney unit values just recorded their first month of growth since April last year and Melbourne recoded their largest unit gains since late. 2019.

If looking for a PPOR and you can't afford a house, there is still tremendous value in a unit. Regarding which stock type will perform better in the long run as an investment? Likely houses. But imho that doesn't mean ALL units should be ignored. Some will provide fantastic returns.

 

Some of our best capital gains came from “good” units, price trebling in 10 years.

By “good”, I mean a well located complex, and, most importantly, the unit has a prime location within the complex. Most of our tenants came from other units within the same complex.

Also very reasonable costs - no gyms, lifts or 24 hour desk.

 

Yup. I just don't see how high quality apartment in a small block in a really damn good area isn't going to do well.

Right now they're all being painted with the same brush and just written off as crap. I don't agree that's the right thing to do for FHBer's who are struggling to get a foot in the door.

 

It's because they will.

 

Interesting.
I have read a lot of about apartments/ units/ walk ups, old, with land, well placed or located.
Also, I have see a lot of these. May be at wrong places.

Can someone please state an example of well placed or well located unit/ walk up?
What are looking to generally spend? 800k to 1m?

Looking forward to some examples.

Ashish

 

This is one I saw recently which I really liked:

Sold 9/164 Edwin Street North, Croydon NSW 2132 on 13 Feb 2021 - 2016736150 | Domain

I thought this was great value for just over $1m - 3 beds in one of the best apartments in Strathfield...stupidly cheap:

Sold 8/49-53 ALBERT ROAD, Strathfield NSW 2135 on 08 Mar 2021 - 2016501074 | Domain

And this is probably my favourite in recent memory - I really wish I had the spare cash for it:

Sold 6/2-4 Carrington Avenue, Strathfield NSW 2135 on 04 Dec 2020 - 2016620155 | Domain


These three apartments are easily within the top 3-5 apartment buildings in their respective suburbs with a FHB price tag. This is why I think there's still tremendous value out there.

 

Some people want to live in Units . Less maintenance / more central location etc .

Our three closest friends have all downsized from the upper north shore houses to units or town houses in the last years . All lower north shore . Don't have to look after a yard . easier to go away for long over seas holidays , more central location so easier to the CBD for entertainment / Work etc . We've downsized to a more central location in the Upper Norther Shore ( better access to other places ) and fixed the yard maintenance by putting a granny flat in it , but same motivations.

Cliff

 

We bought a single level 70s unit June 2019 in Hawthorne Brisbane, close to water. 5 in the complex on 810sqm. We paid $412k and spent $30k on it.

Agent just appraised it at $580k and I wouldn’t be surprised if it gets closer to $650k in the next 12-18 months comfortably.

i can see plenty of opportunity for this stock around Brisbane right now.

 

Interestingly, 2 have been sold in 2020 and another one is going to auction next month