ANZ Home Essentials issue 29

Capital growth - units versus houses
One of the biggest factors when choosing an investment property is capital growth. One enduring real estate belief is that houses tend to enjoy stronger capital growth than units or apartments. However the latest house price data from the Real Estate Institute of Australia (REIA) suggests this is not necessarily always the case.

According to the REIA Market Facts report for the December 2007 quarter, growth in unit prices outstripped house prices in some capital cities over the 12 months to the end of December 2007.¹

In Perth, for example, the median house price lifted 1.1% over 2007 to $465,000 while the median unit price rose 3.9% to $369,000. It was a similar story in Adelaide where the median house price rose 18.5% to $350,000 in the year to December 2007 while the median unit price rose 25% to $275,000. In Hobart, annual growth in units was 16.1% versus 13.8% for house prices.²

The report also shows that unit and house prices in Sydney rose 4.8% across the board during 2007, while in Melbourne the median house price rose slightly more - up 23.4% in the year to December compared to a 21.9% rise in the median unit price.³

Buying on a budget
There is no doubt that purchasing a unit can be cheaper than purchasing a detached home in the same street or suburb. The lower entry price of units and apartments gives investors the opportunity to purchase property in up-and-coming markets they might otherwise be unable to afford.

"With median prices of houses often between 20-60% higher than units, it is little wonder that units and townhouses are becoming increasingly popular with buyers," said Real Estate Institute of Queensland president Peter McGrath. "And as these properties are usually located in prime locations - such as the inner city or on the beach - they also offer a lifestyle attractive to many people."⁴

For example, while a home on Queensland's popular Gold Coast will set you back an average of $436,050 an average unit is more than $100,000 cheaper at $322,500.⁵

Land versus lifestyle
When purchasing a house, you are actually investing in the land and the building. A unit, by contrast, has a smaller land component with much of the value tied up in the building itself.

Because units often lack a large land component, it is important to choose a unit with other attributes like size, architectural appeal or lifestyle. Features popular with tenants include proximity to universities, onsite car parking, security and access to public transport, cafes and shopping.

The low-maintenance, lock-up-and-leave lifestyle of apartments and townhouses is another attraction to many investors and tenants. For others, the greater freedom and space that often comes with a freestanding home outweighs the higher purchase cost.

Either way, it is important to choose a quality, well-located property with broad rental appeal and good capital growth potential.

¹^,²^,³ Real Estate Institute of Australia, Market Facts Report, "Bumper quarter for housing prices: feast or famine", 27 February, 2008 (www.reia.com.au).
⁴ Real Estate Institute of Queensland, "Units and townhouses appeal to buyers", 2 October, 2007 (www.reiq.com.au)
⁵ REIQ, "One year of house price growth", 10 December, 2007 (www.reiq.com.au)

Related ANZ products

ANZ has a full range of residential investment loans, which cater specifically for the needs of residential property investors. Find out more about ANZ Residential Investment Loans and ANZ Equity Manager.