House prices: Is buying an apartment a wise investment for first home buyers?
Apartments are often seen as the only affordable way for young people to get into the property market.
ABC News: Elise Pianegonda
With Australian property prices at all-time highs, it is little wonder first home buyers are looking beyond the classic quarter-acre block.
Think home prices only go up?
Buying an apartment — particularly one off-the-plan — can be a tempting option for young people in particular, offering proximity to the CBD or town centres, brand new finishes and more time to save for a deposit.
Those factors helped entice sisters Emily Ebsworth and Jess Reed to purchase an apartment in the Canberra town centre of Belconnen.
The pair paid $436,500 for the two-bedroom, off-the-plan apartment back in 2010.
“It was fun, it was exciting. We went to the gym there, we went to the mall, it was close to everything,” Ms Reed said.
It worked for a while, before the pair decided to part ways and attempted to rent the property out.
Photo Sisters Jess Reed and Emily Ebsworth eventually sold their Canberra apartment for a loss.
“There were heaps more apartments going up in the area, so ours wasn’t the newest anymore,” Ms Reed said.
“When we went out to look for tenants we found that it was harder than we thought it would be, because there was so much supply.”
Even after finding a tenant, they struggled to cover expenses like rates and levies and, after some negotiation, decided to look for a buyer.
But that proved even more difficult.
Build, buy or bust?
“It was putting heaps of strain on our relationship and the whole family,” Ms Reed said.
“I think that’s why I eventually ended up agreeing [to sell], because I didn’t want it to ruin our family, ruin our friendship.”
After almost a year on the market, the apartment eventually sold for $30,000 less than they had paid for it seven years earlier.
The sisters said the experience convinced them to be wary of buying with family and to know if and when your home might become an investment.
“We were so young — our circumstances were always going to change,” Ms Ebsworth said.
Substantial minority of units outside Sydney selling for a loss
Ms Reed and Ms Ebsworth’s story is just one, and does not speak for all apartment owners or first-home buyers.
But it does reflect a sizable minority of homeowners who resell their units each quarter for a loss — a figure crunched into the Pain and Gain report from research firm RP Data.
External Link The proportion of units resold at a loss by state or territory
The report found, with its extraordinarily tight property market, Sydney sellers fared best, with just 1.8 per cent of unit sales making a loss between January and March this year.
Melbourne’s figure sat much higher, at 11 per cent. While in Canberra — where Ms Reed and Ms Ebsworth’s apartment was located — that number was 21.8 per cent.
But all capital cities pale in comparison to the mining centres of Perth and Darwin, where losses hit 35.9 and 51.6 per cent respectively.
Boutique, better-located apartments fare better
Photo A lot of apartments are geared towards investors and do not usually see an immediate surge in price.
BIS Oxford Economics Property analyst Angie Zigomanis said middle-of-the-road units — largely targeted at investors — are more likely to go backwards than premium property.
“If owner-occupiers are investor-type stock, then often the owner-occupier won’t necessarily make a big capital gain there,” he said.
“If they buy something perhaps a bit more boutiquey or better-located, they might do a little bit better. But if it’s purely investor-stock, they won’t necessarily see the gain.”
Is ‘build to rent’ the solution?
Canberra developer Nick Georgalis said surveys did not tell the whole story and that those in the industry knew what was happening.
“Analysis is all retrospective and not at the coalface . [it] isn’t an analysis of what’s selling today, but what is settling today,” he said.
“We see, year-in, year-out, 3 to 5 per cent growth in what we’re delivering.”
Instead of an oversupply, Mr Georgalis argued there was an undersupply in apartments — particularly in rentals, which in Canberra sit at less than half the national average.
“In Canberra, we aren’t really seeing international investment, and nor are we seeing the national investment from other major cities,” he said.