The team at Buying Houses Australia has identified 5 reasons why apartments will continue to outperform houses over the coming decade.
Baby-Boomer DownsizingWe have all heard the talk of changing demographics across the globe and the ramifications this has for the current housing market. Take a look at the baby boomers, many are now left rattling around in large family homes now redundant, as their children move on. For example a house in Victoria’s Toorak area or Sydney’s lower North Shore will sell between $1 -2 million and a new apartment can be acquired for $750 k to $1.2m.
It’s this residual equity that is starting to get recycled back into apartments via the “echo boomers” or children of the baby boomers. This group are at an age where they too are looking for places to live and bring up small families. Faced with much higher costs for education, health and transport their dream is no long the quarter acre block with a one and a half hour commute to work. With assistance from their baby boomer parents, an apartment close to amenities ensures a foothold into the property market and solid demand for new apartment developments.
Utilities BurdenHome ownership is also being rattled by what I called the utilities drag effect. Poor planning and lack of Infrastructure spending over the past decades has seen utility prices spiral upward. For a homeowner faced with a doubling of electricity prices, increases in water rates, an imminent spike in natural gas charges over the next 6 months and the increasing burden of local council rates is it any wonder an apartment looks a more economical alternative. Many complexes across the country are able to take advantage of Utility Management Rights and purchase in bulk at wholesale rates. This is then passed onto apartment owners through cheaper service charges.
Innovative DesignModern apartment buildings provide all the means for bring technology into your living space. From fibre optic cabling to unique servers and hotspots for telecommunications and computing. Innovative building design and technological advances in construction have led to more eco-friendly and efficient buildings. It’s no longer a selling point to have fast and easily accessible lifts, but more a matter of LED lighting power by solar panels with automatic shutdown. Unless the house has only been renovated and upgraded in the past few years it is hard to compete with the suite of benefits offered in the newer apartment buildings.
Government IncentivesHome owner’s already faced with lack of infrastructure and rising service and maintenance costs are given little relief by state governments. Whereas many states offer incentives for apartment buyers. NSW is a case in point where new off-the-plan apartment buyers are incentivised to buy apartments. The scheme implemented to stimulate the building sector from October 1st, provides stamp duty exception and a $15,000 grant for purchases under $650,000. The message is clear. Giving these incentives is a lot cheaper than governments having to spend money on infrastructure on out lying areas.
Higher ReturnsTypically residential houses across Australia yield around 3.5-4% across most capital cities. Barely above the inflation rate, home owners have been prepared to take less return for the capital appreciation that residential housing has delivered over the past 30 years. In the new paradigm since the GFC, investors are more focused on returns. Apartments are typically delivering 4.5 – 5% returns but in some areas closer to 6%.
When weighing up the cost advantages of what a modern apartment complex offers, it’s not hard to see why we expect better capital growth from apartments than free standing houses over the next 10 years.
“By Shane Clinton”