House vs apartment: Which is better for first-home buyers?

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Should I buy a house or an apartment? This is a question that virtually all home buyers and investors face at some stage.

The big plus of an apartment is that it usually comes with a far lower price tag, meaning it's less likely you'll be saddled with an astronomical mortgage.

Indeed, the disparity between apartments (also called units in Australia) and house prices has widened in the wake of the COVID-19 pandemic.

House vs apartment: Which is better for first-home buyers?

By March 2024, four years after the pandemic's onset, the median house price premium over apartments ballooned from 8.4% to an astonishing 32%, according to PropTrack, part of the REA Group.

In Sydney, this gap is even more pronounced, with houses costing nearly twice as much as units - a stark $710,000 difference. And recent research by CoreLogic backs up this growing price disparity, especially in select areas.

What does the research say?

The buyer's markets where no one wants to buy has identified 65 apartment markets in Sydney and Melbourne where values are below record highs from the 2010s.

"In some of these markets, housing affordability is improving despite high interest rates and a high portion of vendors are willing to sell at a loss," reports the study.

"But buyers aren't biting. The reason? The wrong kind of supply."

Most of these apartments were built in the 2010s on convenient and well-located sites but were aimed at investors who bought off the plan, and they don't meet the needs of many of today's buyers, the report states.

"Instead of first-home buyers rushing to this relatively affordable stock, many are likely to be wary of defects or turned off by the high density and relatively small size of the units."

Do houses always have better price growth?

During the pandemic more people opted for larger living spaces and home offices over closeness to the CBD, says PropTrack senior economist Eleanor Creagh in a recent Your Investment Property digital magazine.

"This shift, coupled with historically low interest rates, has allowed people to take on larger mortgages, further driving up house prices."

But this year things have changed, and apartment prices are growing faster than house prices in every capital city except Canberra and Darwin, according to PropTrack. The disparity in the pricing between housing types presents an opportunity, says Creagh.

The CoreLogic report concurs, suggesting there may be opportunities emerging in some low-priced apartment markets. For example, it points out that low-priced unit markets in Punchbowl and Lakemba in Sydney, and Parkville in Melbourne, have seen relatively high rates of price growth in the past year and still have a median unit value below $600,000. "This suggests that buyers may eventually be swayed to consider purchasing in medium- to high-density unit markets... but only if the price is right," according to the CoreLogic report.

Are poor-quality apartments turning off buyers?

Another big turn-off for would-be apartment buyers is the high number of high-profile, high-rise buildings (think Mascot Towers and Opal Tower) with major construction quality issues.

This has sparked a crisis of confidence in the apartment market, says the CoreLogic report. On top of this, recent bad publicity about the strata management industry receiving commissions, kickbacks and other benefits has made buyers even more wary.

Property expert Michael Yardney is sceptical about Australia's overall apartment outlook but doesn't rule out the fact that some can be good buys.

"Australia's apartment market outlook is poor, with many cheaply constructed apartment blocks being sold sight unseen to overseas buyers as well as local investors who bought off the plan," he says. "These cookie-cutter-style apartment blocks never made good investments, and many investors paid too much to start with," he says.

"But it's important for investors to remember that not all apartments can be lumped into the same category. Inner-city CBD apartments are the ones that are particularly suffering from high vacancies and falling values, while family-friendly larger apartments or low-rise apartments in aspirational and lifestyle suburbs are still in strong demand from owner-occupiers and tenants.

"In today's high mortgage interest rate environment, I would rather own an apartment in a blue-chip suburb than 
a house in an outer-ring location. Apartments deliver better yields than houses, meaning they are cheaper for investors to hold onto," he says.

Houses cost more, but they usually offer more space and higher capital growth, which has surged by 44.2% over the past four years compared with pre-pandemic levels. Units have seen a more modest increase of 21.7% over the same time.

Each house or apartment has its pluses and minuses. Whatever you buy, your best protection is to do all the checks.

With apartments, make sure you (or the expert you engage) go through all the strata title records for several years to pick up problems. Don't expect either the selling agent or the vendor to tell you about any downsides - remember it's 'buyer beware'.

Pros and cons of apartments


Aside from price, there are other pluses in owning an apartment, according to Yardney.

The upsides include: 
• Lower bills. Less space means less electricity and gas usage.
• Less maintenance. Apartments 
have little or no garden to take care of, and any common areas are maintained by strata management. 
• More security. Being built in blocks, apartments offer the security of neighbours. Often, apartment blocks also have an added level of security with a front building door ahead of your front door.
• Good locations. By their very nature, apartments are generally in good central locations where land is expensive and living is in demand - think city centres, areas close to amenities or the beach.
• Higher rental yields. The lower cost of an apartment versus current high rents means apartments can earn 
a higher yield than some houses.

The downsides include:
• Owners must abide by strata or body corporate rules. This could 
be as strict as imposing rules 
about pets and limiting or prohibiting renovations.
• The building is costly to run and maintain. The number of fees 
(strata fees and special levies to 
pay for major improvements) are higher, which can be overwhelming for some investors.
• Smaller. Lower bills are a bonus but smaller also means less space.
• Lack of privacy. Shared common areas and front doors might be a great security feature, but they also mean you sacrifice some privacy.

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Money's founding editor Pam Walkley stepped down in early 2015 after more than 15 years at the helm. Before that she was at the Australian Financial Review for 11 years, holding several key roles including news editor, chief of staff and property editor. Pam is now a senior writer for Money.
Comments
Sadhana Desai
February 5, 2025 11.02pm

Hi Pam

It would be interesting to know how one can go about asking and checking on the quality of the building,reports,records etc. if there are some websites or organisations that can provide honest history about the place, it will be nice to know who to approach.

For example there are news about houses being built by big companies in locations known for flooding. Now this sort of info is hard to find if you are buying from the company or from the council. How does one find the truth?