Apartment versus house: price is not the only factor for buyers

As the price gap between houses and apartments widens quickly, property experts say buyers should do their homework.

Apartments and other home units are growing increasingly cheaper than houses, but buyers are being warned about potential risks.

As lifestyle choices and affordability drives more people toward apartments, property specialists say issues such as strata fees, lower capital growth and building issues are impacting owners’ finances.

Figures from PropTrack show the national median house price today is $775,000 and for units it is $598,000 – a price difference of $177,000 or 30 per cent. Five years ago in September 2018, the medians were $550,000 and $500,000 respectively, a much smaller gap of $50,000 or 10 per cent.

PropTrack director of economic research Cameron Kusher said many Australians preferred to live in a house, and pandemic lockdowns heightened this, “increasing demand for houses and resulting in faster price increases”.

PropTrack’s Cameron Kusher said the pandemic pushed house prices ahead. Picture: Supplied

Research group Canstar’s spokeswoman, Effie Zahos, said “affordability is pushing a whole lot of people into apartments”, mainly first home buyers and downsizers.

But rising strata fees could be a barrier to borrowing, with some apartment complexes charging “the equivalent of buying a $10,000 car each year”, she said.

Higher costs for cleaning, maintenance and insurance were adding financial pressure, Ms Zahos said. “All that is feeding into strata fees and that is impacting consumers’ borrowing capacity,” she said.

“Typically, lenders add strata costs on top of living expenses when assessing loan applications so you may find your borrowing power drops. The higher the levies, the bigger the potential impact.”

Ms Zahos strata fees were generally 0.3-to-1.2 per cent of a property’s value, and many people were happy to pay this for lifestyle benefits including pools, gyms and “not having to do the lawn mowing”.

“Be mindful that some lenders may stay away from certain areas, and if the size of a unit is under 50 sqm it is generally off limits for major lenders,” she said.

Property buyers agent Michelle May said she had seen strata fees of more than $10,000 a quarter for expensive apartments with car stackers and other high-cost inclusions.

Ms May said apartment supply could grow quickly to cope with Australia’s surging population.

“They’re pumping out apartments at a much higher rate than houses,” she said.

Ms May said homebuyers should consider the risks: “you are not just buying the apartment – you are buying into the community”.

Buildings with a good mix of owner-occupiers and renters tended to be better than investor-only buildings that had “absent owners”, she said.

“Building quality is a real issue – I think it’s very important that if you are going to drop that amount of money, look past the shiny fixtures and fittings and do your due diligence on the builder and the architect.”

“All that glitters isn’t gold when it comes to apartments.”

Buyers agent Michelle May says do your homework before purchasing. Picture: Supplied

She said land was a key risen house prices rose faster. “In an apartment you share the value of the land on which the building stands. With a home, the land value keeps going up, and you can’t create any more land.”

PropTrack’s Mr Kusher said price and location were the main factors drawing people to apartments.

“Units allow people to live in more desirable areas at a much lower price point than owning a home,” he said.

“In many of the most sought-after regions of the country, house prices are much more than double those of unit prices.”

Mr Kusher said house price growth had historically outperformed units because of houses’ larger land component.

“While more people might be willing to live in units, it is expected that house prices will rise at a faster pace than unit prices over the coming years,” he said.

Originally published as Apartment versus house: price is not the only factor for buyers