In today’s show, Domain’s Group senior economist Dr Andrew Wilson gives us his view on the house vs unit debate
Kevin: A common question I’m asked is “What makes a better investment? Is it a unit or is it a house?” Let’s check in with Dr. Andrew Wilson, senior economist with the Domain Group, and get his thoughts on that.
Good morning, Andrew.
Andrew: Good morning, Kevin. How are you?
Kevin: Well, thank you. What would you say in answer to that question?
Andrew: Well, look, it’s “How long is a piece of string?” really, Kevin. It depends on the location. It depends on the price point, of course. Typically, units have a lower price point, are less expensive, I guess, more affordable than houses for an investor, and that typically means a higher yield.
The disparity between prices is different to the disparity between the rents when you compare houses and units. That means typically you get a higher yield from an apartment than you would from a house. But at the other end, you tend to get lower vacancy rates on a house. There’s more demand for houses. Lower vacancy rates, so higher occupancy rates, typically, compared to unit.
But it does depend on where you’re looking and the market. Of course, apartments do suit those investors who are looking for a lower entry point, and houses, of course, may suit those who are looking for investment property in their particular region if they’re living in a middle- or an outer-ring suburb. Look, a lot of investors like to connect with the property that is in their local neighborhood or adjacent to their local neighborhood.
Kevin: Of course, it’s always going to be a better investment in a unit if you’re looking at an area that’s predominantly servicing students. As an example, there are so many of those educational hubs around Australia where definitely, a unit probably is going to be a better investment. So it comes down to location and really what’s what happening in that area, Andrew?
Andrew: Absolutely, Kevin. That’s a good point. There’s certainly a market for student accommodation. There are now purpose-built developments that are designed specifically for students. I guess they’re what we call the old fashioned bedsit type of apartment, which is basically a single room and then a bathroom, and they’re designed for single-student accommodation.
A lot of developers have a one-shop stop type of project whereby they provide all the services, and all the particular on-costs that are involved with apartment living, and of course, they’re designed for overseas students, as well.
These can, for investors, become an interesting proposition because again, they can have a very low entry point in terms of the price of student accommodation units, and of course, they have higher yields.
Kevin: Yes. Of course, you have to think of things like vacancy, too. If you’re going to be going into a highly residential area where you’re going to be attracting a family, you may end up getting longer term tenancies too, anything up to a couple of years. So I guess there are a lot of factors that you have to weigh up, even looking at what type of investor you are, Andrew?
Andrew: That’s right, Kevin. I do believe that we’re in for a period of higher levels of residential investor, particularly from moms and dads investors. I think residential investment will continue to produce yields well in excess of what we could get, for example, from bank deposits, and also I think that we still have that notion of security with that bricks-and-mortar style investment that’s part of Australians’ DNA to a large degree.
I think that will continue to drive residential property investment at higher levels, given also the tax breaks that are involved for residential investors. I think that this will be a growing trend in the market place for investment asset vehicles of this nature.
Kevin: Andrew, always good talking to you. Thank you so much for your time.
Andrew: Thank you, Kevin.