Units prices to than houses fare better in property downturn

Cheaper price points and the return of investors is set to cause apartments to weather the coming property downturn better than houses.

Megan Derricott and Timothy Smith with son Sawyer, 6, are selling their inner city unit to upgrade their home after an unexpected pregnant. Picture: Lyndon Mechielsen/The Australian

APARTMENTS are expected to weather the coming property downturn better than houses because of cheaper price points and the return of investors.

The pandemic-induced “race for space” triggered record demand and price growth for houses (up 36.9 per cent).

Units on the other hand were more subdued (up 14.9 per cent), which caused the price gap between the two housing types to climb to an all-time-high.

Now that the boom has come to an end, with more than half of suburbs nationally recording price falls, apartments are already showing more resilience to the change in conditions.

PropTrack’s director of economic research Cameron Kusher said the regional shift had begun reversing as capital cities come back to life, while others also have to contend with affordability challenges.

“House prices have risen much more dramatically than units,” he said.

“So, for a lot of people, if they want to live in places close to the city, they simply can’t afford the house and have to choose the unit.”

Analysis by the data firm found that only two regions nationally have recorded unit values lower than they were in March 2020.

Melbourne-Inner units – which border the brunt of the negative impacts of Covid – are 5 per cent below their March 2020 level.

But first homebuyer activity has reportedly increased in recent months in response to stamp duty concessions in the area.

Units in Sydney Ryde are very slightly below pre-pandemic levels if rounded to a number of decimal places.

All other regions nationally have experienced an increase in unit prices as investors return to the market and people return to high-density living.

Migration will also underpin demand for apartments and fill any gaps left by Millennials moving into suburban houses to start families, The Demographics director Simon Kuestenmacher said.

Mr Kuestenmacher said people had likely moved past the idea that living in close quarters can be dangerous to health, as categorised in early-2020.

“People at venues – airports, music spots – are frequenting them as they did before the pandemic so I don't think there is a mega shift in how they view their health,” he said.

“People choosing to work from home instead of going to the office, that’s a lifestyle choice.”

Investors are also coming back to the market, albeit at levels below the historic average.

Mr Kusher said he believed interest rates could make it harder for the group to get credits but competitive rental prices offered an attractive proposition.

“There’s downside in property prices, but there’s upsides in rents,” he said.

With what’s happened to the share market over the past couple of months, it will probably encourage people more towards bricks and mortar.

In inner-city Brisbane, Megan Derricott and Tim Smith are selling their industrial-style Spring Hill apartment to upgrade now that their family is unexpectedly growing from three to four.

Forced by happenstance, they were quite dubious about the market but say they are now feeling confident.

“We think a good property in a good area would sell and our home is just that,” Ms Derricott said.

Their agent, Alex Rutherford of Place New Farm, believes the local apartment market will “glide” through the coming market, neither going up nor considerably down.

“Even during the global financial crisis, apartments weren't really impacted,” she said.

On top of increased demand, Covid uncertainty and rising building costs caused many developers to hold off on new projects.

Analysis from property services firm Charter Keck Cramer suggests each of the east coast capitals is facing of a shortage, with the number of apartments being released on to the rental market well below the 10-year average even before the Covid pandemic.