How is the apartment market changing for investors?
There are a number of market indicators that are pointing investors toward the rental landscape – namely, the fact that as the population continues to grow, so too does demand for residences.
While house prices are still moving onwards and upwards according to CoreLogic RP Data, there is a growing need for available units that rental tenants can access.
This is a fantastic opportunity for investors to capitalise on a sector that has been seemingly neglected in recent times. New building approvals are springing up in the thousands.
House prices moving people toward units
Housing affordability has long been a matter of contention in the country. CoreLogic RP Data suggests that for the month of April, the median house value in Sydney has grown by 1.01 per cent from March to sit at $1,010,360. On the other hand, units in Australia's largest city increased by 1.05 per cent – however, they're significantly more affordable at $688,100.
Housing affordability has long been a matter of contention in the country.
The Melbourne market has gone the other way in April – house value decreased by 0.56 per cent and units decreased by 0.52 per cent, so they now sit at $821,340 and $522,710 respectively. Melbourne is seemingly much more affordable than Sydney, although the lifestyle is different and the environment is forecast to change dramatically. One region might suit your budget more than the other, or your base of operations from which you run your portfolio is closer to Sydney than Melbourne. Wherever you decide to buy, you can be sure that your investment will be changing in the near future.
Let's focus on the changing apartment landscape in these two cities:
According to a report by Jones Lang LaSalle (JLL), the number of new apartment approvals over the last year has increased drastically in Sydney – by 38.2 per cent, in fact.
Alongside that information, there are 12,900 new apartments to be constructed between 2016 and 2020, 6,650 plans approved and 15,450 plans submitted for approval. Developers are seeing the value that apartments have and are therefore building to sell. Through 2015, there were 36,130 apartments sold in Sydney alone. If you're planning to buy in a market that seems so competitive, make sure to consult with your Cohen Handler buyer's agent first. Extensive market knowledge and understanding means that they will be able to point you towards the best investment property for your needs that also matches your price ceiling.
The JLL report states that the gross rental yield for Sydney apartments is 4 per cent. However, the average rent for an inner-ring apartment is so high that investors can really capitalise if they make smart moves. A one-bedroom apartment averages out at $520 a week, while a two-bedroom home is $650. Compared to the Melbourne prices stated below, that number seems to be extremely high.
The Australian Bureau of Statistics reported that by September 2015, the population of Australia had grown by 313,200 people. New South Wales added 102,200 to its number, which ended up being a close second to Victoria with 102,300.
That many new people in a city means new homes will be snapped up in a heartbeat, and your apartment rentals might just be the first to find tenants.
Melbourne has also grown by a vast amount in recent times, as a report from McCrindle Research states. There are further major increases predicted as well – by 2056, Melbourne is predicted to be the largest city in Australia, home to nine million people. The 102,300 new residents who call Victoria home after 2015 will be seeing a number of new faces around over the next few decades.
That sort of massive population growth requires a certain type of housing in order to be sustainable: namely, high-rise apartments. To reduce the footprint on existing land space in the city, Melbourne needs to grow upward, not outward, to accommodate the new influx of predicted residents. Apartments are the answer.
Already, this construction is underway, with JLL recording 13,675 to be constructed between 2016 and 2020, while 12,531 have been approved and a further 13,505 are currently being processed.
In contrast with Sydney's exorbitant unit prices, Melbourne is seen as much more affordable for tenants, which is a possible reason why so many are choosing the cultural centre over the financial capital. A one-bedroom apartment in Melbourne will cost $355 per week, while two-bedrooms costs a little more at $450 – that's $200 less than in Sydney.
If you're concerned about your new investment properties being vacant, then perhaps Melbourne is a wiser choice for you. Cheaper rent means greater affordability, and that entices people to move. Gross rental yield in Melbourne is also higher, with one-bedroom properties showing 5 per cent returns.
Talk to your buyer's agent before making any decisions about where to buy your next apartment investment – their knowledge could not only save you thousands, but will also set you up for the best possible returns.