Over the years we have seen a variety of property investment advisory companies claim that one type of property is better than the other. Is a free-standing house or a strata apartment better for growth as a long-term investment? And it’s an argument that never seems to be won.
But does it need to be. After all, there are so many markets within the Australian property market that you can have price growth in houses in one area and not in another, and the same goes for apartments.
The ones proposing that a free-standing house is a better option generally argue that the value of a property is held in the value of the land it sits on.
But history shows that stand-alone homes will not always experience stronger capital growth than apartments. This is largely due to there being a number of factors other than the land and its value to consider.
The belief that land holds a property’s value lies in the premise that land appreciates while buildings depreciate. As a stand-alone home holds 100% of the land ownership, it has the potential for more growth vs an apartment which only owns a percentage of the land that all other apartments also sit on.
Historically when inner-city land was more available, it may have been fair to say that the percentage of land ownership was the most important consideration when investing in property.
Today, most capital growth is happening in our capital cities where almost two-thirds of the Australian population live. It is here where people enjoy cultural and entertainment precincts, shopping, facilities and plenty of opportunities for work. With available land being limited, the only option is to build up, meaning medium and high-density living is now becoming the norm.
Due to population growth and the desirability of central city living, the land that inner-city apartments occupy has become increasingly valuable. In other words, lifestyle is a key factor driving property price growth.
Another influence shaping the property market is affordability. Most stand-alone homes in Melbourne and Sydney close to the CBD are now priced at well over $2 million, if not $3 million. Buyers who don’t have this spending power, can achieve the same lifestyle in the same desirable location for much less by purchasing an apartment or a townhouse. Depending on the location, an inner-city apartment or townhouse can be secured for much less than the cost of a stand-alone home, sometimes more than 50% less.
With this in mind, saving for a deposit for an apartment is generally much more readily achievable. The result is being able to secure a property in the same location as a free-standing home much sooner.
So the answer to this long-standing argument is “it depends”. It depends on the location, the population growth, the demographics of the buyers in specific geographical areas and their affordability.
When considering all the factors above, it can be argued that a property’s potential for capital growth lies in demand, not the land.