House versus Apartments

[Ghostwriter]

What is a better investment, I have heard that house is far better investment, if that is true why do ppl build so many apartments?

 

[Guido]

why do ppl build so many apartments?

Developers typically make more by sqeezing more individual sales out of the one site. People buy them because they're generally cheaper for the location they offer.

Capital appreciation will usually be better when you've got a nice house on a good block, but apartments can go extremely well in the right circumstances (general population move back into the heart of the city, tight rental market). Prices for apartments in central areas can also be the first to explode in boom times, with a ripple effect then hitting suburbia.

Personaly I reckon that, right now, city based apartments offer the better long term value. Market doesn't want to know about them, and as hard as it is to go against the grain and buy something you know is in oversupply, there's some ridiculously top value buys available at the moment. I'm no real estate expert, but I reckon it's fair to consider a 2 bedder on, say, Swanston St, as a fairly close to a 'median' Melbourne property - in the current climate, something like that might not move for a good 5 years, but when, in 10-15 years, the median house price in Melbourne hits a mil, just how far off will that reasonable, 'median' 2 bedroom apartment in the heart of the city (which can be picked up today for $200K-$300K) be from that median $1mil mark? The risk is that it will be quite a way off, the possible reward is that the market will have re-assessed and you've possibly made a 500% profit in 10 years. Even if they only improve at the rate of inflation, with some yields at 5%-8% and rental demand rising, it's very hard to get burnt with a well chosen property.

When you compare that to houses, I just don't see that $500K-$600K quarter acre in a nice suburb having the potential to increase three, four or five fold (again!) in that time frame. Not saying it couldn't happen, just that IMO currently underpriced apartments have more scope for improvement thanks to what's probably been a 20%-30% crash in high density inner city real estate over the past 2-3 years.

 

[Leper]

Commercial.

 

[FIGJAM]

Don't ever buy a new apartment in Melbourne (at least not for the next 30 years).

If it's off a developer with a nice display suite and brochure, be rest assured that you will be flushing 10-15% of your purchase price down the ********ter for the privilage.

For new apartments, developers prey on naive investors. It's called two-tier marketing. It's not much different to the experience of buying a new car, when you can get the same car with a few hundred clicks on it for 10-15% less. Trouble is, apartments are 10 times more expensive and often the hit is literally as much as a new car, and the news is filtered with a severe shock come time for finance.

Buying established boutique and unique inner-city apartments in tight locations, such as around Flinders Lane, is not inherently foolish, as oversupply issues of that type and location is unlikely. And it always comes back to a basic supply and demand issue.

Buying generic apartments on the outskirts of the CBD, Southbank, St Kilda Road or the car crash that is the Docklands, then you will not only be risking limited capital gains, but risking reduced value just for good measure.

Unless you're looking to invest in Tarneit or some such, you will within a stable economy, not be subject to oversupply issues, as they aren't making any more land, but they can always build up.

 

[Leper]

Yep.... agree 100% ^^^^^^

One company, let's call them "Middle Nett Assets", is one of main culprits. I checked them out in 2001 and ended up buying a "used but new-ish" 2br apt for $250k (ish) on the free market instead. "Middle Nett Assets" were selling an equivalent in the same area off the plan for $350k.

They mainly target overseas investors (particularly Singapore and Hong Kong; I was based in BKK at the time) who don't know the market. Lots of seminars and all the glossy BS. Not dissimilar to what the Qld mob's were doing by wooing Sydney based investors years ago.

 

[nokiacasio]

Houses are generally harder to rent out. You have to think not only about the nominal capital appeciation but also on the rental income.

-----------
Collingwood Forever!

 

[FIGJAM]

Yep.... agree 100% ^^^^^^

One company, let's call them "Middle Nett Assets", is one of main culprits. I checked them out in 2001 and ended up buying a "used but new-ish" 2br apt for $250k (ish) on the free market instead. "Middle Nett Assets" were selling an equivalent in the same area off the plan for $350k.

They mainly target overseas investors (particularly Singapore and Hong Kong; I was based in BKK at the time) who don't know the market. Lots of seminars and all the glossy BS. Not dissimilar to what the Qld mob's were doing by wooing Sydney based investors years ago.

Yep, seminar marketing preying on naive interstate / intercontinental investors is probably the most well known two-tier marketing. But it can also happen to local people as well.

Display suite, glossy photos, an agent that will take you out to dinner...they're all ploys that local real estate agents can't use and as such you'll sting on the re-sale under a normal marketing campaign.

Then there are some who throw in rental guarantees (inflationary effect on purchase price), will strongly push "stamp duty savings" (you're paying it in the asking price sunshine!), offer rebates for early settlements (to make sure you pay them early and to prey on any naive valuers), throw in furniture packages (banks cannot lend on furniture which some people forget). This is how they negotiate (read: lure suckers).

And I have no qualms naming the developers who do it. It's all of them! Every apartment development company you can think of does it, from the laughing stocks, to the big boys. They need the prices to cover building costs and profit. They do not negotiate, even when the market falls dramatically, such as after the boom of 2003.

Suffice to say, never, ever buy a new apartment.