26.11.2024

Apartment prices are rising

Apartment prices are rising at a faster rate than house prices in almost two-thirds of all suburbs nationwide

Eliza Owen, CoreLogic’s head of research said deteriorating housing affordability had sparked a marked increase in demand for units. A year ago apartment price growth was stronger than houses in just 46 per cent of suburbs nationally.

“Until affordability improves, either by lower interest rates and higher incomes, the more affordable end of the housing market such as units will continue to outperform," she said.

“However, when the next upswing comes along, detached houses will bounce back stronger because they have underperformed during the downturn.”

The share of Brisbane suburbs where unit prices have increased at a faster rate than houses blew out to 87 per cent, more than double the 40 per cent recorded during the same period last year and the largest increase of all capital cities.

This coincided with strong growth in unit values in the Queensland capital, which lifted by 3.5 per cent in the past three months, larger than the 2.1 per cent house price increase. In the past 12 months, unit prices jumped by 18.8 per cent, compared to houses’ 11.9 per cent growth.

Brisbane-based buyer’s agent Zoran Solano said many buyers are turning to units after house prices surged by more than 65 per cent in the city since the onset of the pandemic.

 

“Buyers’ borrowing capacity has been squeezed hard by high house prices and interest rates, and they can no longer qualify to buy a house, so they’re pivoting to apartments,” he said.

“About 25 per cent of our recent purchases have been units, which is higher than average. Most buyers are being driven by mortgage serviceability and also stronger cash flow if they’re investors because unit rental yields are much better than houses.”

Sydney’s increasingly unattainable house prices have also steered buyers towards higher-density housing during the same period.

Unit prices in the city lifted at a faster pace than houses across 62 per cent of all suburbs, up from 36 per cent during the same period last year.

Sydney-based buyer’s agent Amanda Gould of HighSpec Properties said there has been a significant increase in investor demand for apartments.

“We’re seeing more investors return to the apartment market because it offers them better value and higher rental returns,” she said.

“Investors tend to have budgets under $1 million, so that would typically get them a unit within 10 kilometres of the CBD.

“Our buyer pool now consists of 40 per cent investors and 60 per cent owner-occupiers. Six months ago, that ratio was 20 per cent investors and 80 per cent owner-occupiers.”

In Melbourne, apartments have outperformed houses in almost six out of 10 suburbs in the past three months, up from just over half of all suburbs a year ago.

While the median unit value across Melbourne fell by 0.6 per cent during the same period, it was a smaller decline than house prices, which fell by 1 per cent.

Growth in unit values in three out of four Perth suburbs exceeded that of houses, six out of 10 in Adelaide and one out of four in Canberra.

Inner Sydney suburbs Rosebery and Zetland topped the markets where apartments outperformed houses nationwide, with unit values surging ahead while house prices actually fell.

Units in Rosebery rose by 3.4 per cent, while houses in the suburb slumped by 9.1 per cent. In Zetland, which is dominated by high-density housing, apartment values rose by 2.2 per cent, while house prices tumbled by 10.1 per cent.

Unit prices in Sydney’s inner west suburb, North Strathfield, lifted by 3.4 per cent, while house values dropped by 6.6 per cent.

Apartment values in other inner west suburbs Russell Lea and Abbotsford, also outperformed house price growth.Russell Lea apartments rose by 5 per cent, while Abbotsford increased by 0.9 per cent in the past three months. By contrast, house prices in those suburbs fell by 4.5 per cent and 8.1 per cent respectively.

Ms Owen said the high premium of houses over units in those suburbs was probably driving buyers towards units.

In Rosebery, the median house value is $2.2 million, more than twice the unit median of $985,459. Similarly in North Strathfield, the median house price is $2.4 million, which is also more than twice the unit median at $876,416.

“The biggest premiums of houses over units tend to be in the higher end of the market, so units might be a desirable and relatively cheap way to buy into those more exclusive areas,” she said.

Unit values across the inner Melbourne suburb of Balaclava, rose by 2.2 per cent, while house prices there slumped by 7.6 per cent. In South Melbourne, unit prices lifted by 1.1 per cent, while house prices in the suburb dropped by 8.6 per cent.

House premiums over units in those suburbs currently sit at 137 per cent and 168 per cent respectively.

Scott Kuru, co-founder of property investment advisory Freedom Property Investors said units will continue to grow at the same rate or faster than houses as long as large house premiums persisted.

“When the affordability disparity is huge, like you’re seeing now in Sydney and other big cities, many people will be drawn to the cheaper option, even if prices are growing much faster than houses,” he said.

Source: CoreLogic

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