Nationally, 58% of flats, units and apartments are owned by investors. That is quite an amazing statistic, especially when you compare that with detached houses where only 21% are investor owned.
Across the capital cities the proportions are even higher. Darwin tops the list with 70.6% of all units being rented followed by Brisbane where 70.2% of all units are rented.
The lowest proportion, 60.3% in Sydney, is still significant. I would presume Sydney’s proportion is probably lower due to the city having the highest house prices (more owner occupiers choose units over houses thanks to the lower entry price), as well as the fact that Sydney is the most mature unit market in the country.
The high rate of investor ownership of apartments begs the inevitable question… why?
Similar to owner occupiers, it partly comes back to price points. The unit market generally offers a lower buy in price (investors face affordability hurdles too!) than detached or semi-detached homes. Based on median selling prices across the combined capital cities over the June quarter, units are 12% or $59,000 more affordable than houses. The gap is widest in Sydney where unit prices are almost 23% or $139,000 lower than house prices.
Another valid reason is the fact that rental yields have historically been higher for units compared with houses. The latest RP Data-Rismark indices show unit yields across the combined capital cities are currently at 4.9% compared with 4.2% for detached houses. In fact, across every capital city, rental yields on units are higher than yields for houses (except Darwin where both are at 6.1% which are the highest rental yields across the capital cities).
Finally, it is often the case that units are located in more popular locations for both renters and owner occupiers. The majority of unit developments are located close to transport networks, major working nodes and retail amenity.
The high proportion of investors really doesn’t come as a surprise!
Units are generally cheaper to maintain than houses. So the net return difference between houses and units is even bigger than the gross return difference.
Units are easier to maintain and require less Maintance than houses. As an investment, they are by far the easiest to manage. People I speak to… Your normal mum’s and dad’s when they think investment property they think of high rise off the plan or older units. With so many people holding units and investment and the great depreciation on units to offset tax income it has become a mind set for the investing market to ‘think’ unit.
Entry point is lower and that is appealing to people who are active investors, ie the ‘speed’ to ad another property to your portfolio.
I have 4 inner city Melbourne apartments purchased over 7 years on a basic income of around $70-90k P.A. Simply by being disciplined to revalue, access equity and utilize the increasing equity to finance each purchase. In seven years it cost me just the initial deposit for the first property and reinvesting the tax / gearing to pay down debt and finance the next. Not a bad effort for the income range and knowledge I had at the time I feel.