House or Unit, which do you choose?
The choice over houses versus units continues to be the subject of hot debate, but there is still a great deal of misunderstanding surrounding the facts. On the surface the answer may seem obvious; however, when you examine the fundamental comparison of return on investment more closely, the result may come as a surprise to some investors.
Over the last 40 years, houses in general yielded only slightly higher capital growth than units (approx. one to two per cent per annum on average across Australia). However, according to the Real Estate Institute of Australia this gap has significantly narrowed over the past 12 years to about 0.5 per cent pa. Don’t be misled however, as this data compares houses and units Australia-wide valued between $5,000 and $50 million.
The real question is: what is going to perform best in your ideal investment price range?
My belief is that properties in the $300,000 to $600,000 price range, or those that sit within $100,000 of a city’s median price, are generally the best investments. This is due to more consistent growth and the ability to gear higher with a smaller deposit which allows better diversification and faster asset growth.
Land value and quality is key
Another important, but often misunderstood, factor is land value. Naturally, it would seem that houses have higher land value, but it’s important to note the distinction between physical land size and land value. For land value, quality is key, not size!
Land value and quality are determined by a number of factors including:
- Proximity to employment infrastructure and transport
- Access to schools, shops and amenities
- Point of difference features such as views and golf courses
Unfortunately, the price range for houses that incorporate these characteristics and also have very high land quality is often prohibitive, particularly in the capital cities. For this reason, units or townhouses are often a better investment - a unit can be well located, offer many attractive features such as proximity to a train station and be near other attractions such as restaurants and leisure activities.
Other key benefits of units include:
- Higher rent and depreciation benefits
- Availability of purchases ‘off the plan’ over a relatively long term
- Lower maintenance and fewer headaches
Richard Sheppard is the managing director of inSynergy Property and Finance Solutions. inSynergy provides professional property investment advice, property market research and specialised mortgage broking services. inSynergy is also an accredited investment property buyers’ agent. Visit inSynergy at insynergy.net.au or phone 1300 308 808
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