Property Investment – Apartments

Houses as investments make pretty good financial sense over the long term (houses tend to double in price every 8 to 10 years) but what about Apartments?

Firstly you have to ask yourself, what am I investing for? Is it long term capital growth or short term income from rent? Generally speaking older people invest for short term income rather than long term growth, fotr obvious reasons!

Apartments usually aren’t excellent capital growth investments as historically, property prices have in fact reflected the cost of land and as an Apartment owner; this land price is not reflected in the cost of the unit itself. Developers are using all sorts of tricks to sell apartments currently as well as ‘rent guarantees’. It is also important to think about what happens after the rent assurance runs out and the figures don’t add up. Also will the person offering the guarantee still be in business to honour it? Most Real Estate agents know that these guarantees are a marketing ploy and tend to reflect the weakness in the Apartment market as a whole. (why propose something when you do not need to?)

Also bear in mind that mortgage financing for Apartments is tricky with most Banks not going over 60 or 65%. That might be OK for you, but what about your potential buyer a few years from now?

Apart from not owning the land, another factor is the potential over supply. Developers can easily put up a block of new Apartments, quickly and therefore further diluting the potential market. Old rule of supply and demand kicks in and as an individual you have very little control over it.

The fact above together with steep Body Corp fee’s and repair issues means that Apartment buyers will need to cautiously think before making a purchase. As for rental return, around 7% would warrant a house purchase but near 10% is required for Apartments

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