COMMENTARY: Apartment v House v Land v Serviced Apartments
Summary: There are many different types of residential property. We are investigating and comparing apartments, houses, land and serviced apartments in a global perspective. You will learn the pros and cons of each in this blog article and we hope this will inform your property purchases
Apartment, House or Land? Choices, choices, choices
Generally in the Australian residential property sphere, there are a few common options. They are:
- House and Land
- Serviced apartments
The big question is. Why, What and When.
Let's start with the most common property request: Houses/House and Land
House and Land
The most in demand kind of property. It has good capital appreciation and very good for families. Return on rental is quite good in general as well.
- New houses tend to be far from the city - and far away from work
- Gardens can be huge and take time to maintain - time you may not have
- Large built up area also means more cleaning and house maintenance
- Therefore not as good for singles and young couples
- Capital gains are good especially if subdivision is available
- In the modern age, Airbnb can turn a large house into a bustling bed and breakfast, alternative rental income
The choice for urban young professionals. Almost always located near amenities and public transport, this is ideal for the fast paced lifestyle of today's young professional.
- Apartments are not so good for large families as higher number of rooms are lacking
- Capital growth may be weaker than a house
- Strata Fees may be high in high amenity apartments
- Lack of extra car parks, or sometimes no car park provided
- Good rental income, developers in Perth are guaranteeing 5-6% on average and there are lots of young professionals to rent to
- No gardening and less home maintenance
- Close to amenities like shopping centres, gyms etc
- Public transport means less time stuck in traffic jams
- In some cases where amenities are not provided within the apartment, Strata Fees are quite low
Apartments have their time and place. In modern cities it is no longer the case that apartments yield low return on investment. Moreover, as Perth city gears to build more apartments, less choice to buy house and land may mean that the lower capital return history of apartments compared to houses/land may be a thing of the past. This is also supported by the trend of Australian families getting smaller, meaning there will be a higher incidence of smaller families that can fit into a larger apartment. There is no longer anything wrong with apartment investment, in fact, it is becoming increasingly more attractive and may outpace house sales in the near future.
The most versatile option for investment. You can do nearly anything you want as long as you have capital and it is within the law .
- Holding costs for land is extremely high. This is the reason not all developers have land banks, but instead buy and build. Land holding costs in Australia is significant enough to burden a property development's cash flow if sales are too slow
- The right plot of land may bring the most profits. Whether you subdivide and build houses or apartments, a proper subdivision that attracts the right buyers will bring huge profits beyond any of the above investments.
Serviced apartments are a business that rents out apartments, similar to a hotel/motel concept. In my opinion, serviced apartments do not count as residential property. Nevertheless, in people's minds, they do. Investing in serviced apartments is buying an apartment except:
- You cannot live in it if you do not rent out
- You are bound to the apartment operator, they are your property manager
- You have no leeway on property manager. Who you get is who you have
- Those fees may be very high as you do not have a choice of property manager and operational costs may be high
- You must refurbish the apartment when required by agreement
- Hard to get bank funding in a suppressed market
- Pool of buyers of serviced apartments are limited
Therefore, in my personal opinion, all the above properties for investment is profitable at the right place and time, except serviced apartments. Nevertheless, you can make a profit with a serviced apartment in right market condition and a good operator. I hope this information is helpful to you and will assist you in your Australian property investment.