Real estate: Pam Walkley

A buyer preference for houses has made apartments more affordable

The outperformance of houses over units as a broad trend is increasingly evident. At a national level, house values have risen by 3.5% over the six months to January while unit values are unchanged. And the past three months have seen every capital city record a stronger result for houses over units.

“Demand for units has diminished through Covid-19 amidst record low levels of investor participation and changing living preferences,” says Tim Lawless, head of research at CoreLogic. “At the same time, supply levels are heightened in some precincts. While demand and supply remain imbalanced, we are likely to see units continue to underperform relative to detached housing markets.”

If you’re in the market for a home or an investment property, does this mean you’ll likely find better shortterm value in the apartment market given this imbalance? Certainly, first homebuyers should note that CoreLogic has identified 23 suburbs, mainly in Melbourne and Sydney, where median apartment prices have fallen below the price cap for the first home loan deposit scheme (FHLDS).

Under the scheme, buyers need only a 5% deposit to avoid expensive lenders’ mortgage insurance, normally required with a deposit of less than 20%. The gap of up to 15% is guaranteed by the scheme to the lender. The FHLDS cap for existing properties is $700,000 in Sydney and $600,000 in Sydney. Suburbs where you can buy an apartment for less than this include Kellyville, Strathfield and Caringbah in Sydney and Brunswick, South Melbourne and St Kilda East in Melbourne.

Around 1800 FHLDS places from the 2019-20 have been rolled over into the current financial year and a further 10,000 places will be available for 2021-22.

Of course, selecting a property doesn’t just come down to price, although affordability is important. If there’s a long-term trend towards houses, then value rises for apartments will be curtailed. And rental returns, already under pressure, may weaken further.

The gap between house and unit rental prices has grown over the December quarter, according to Domain. Overall median weekly house rentals rose 2% in the December quarter whereas apartment rentals fell 3.4%. The biggest falls were in Sydney, down 5.1% (houses up 1.9%) and in Melbourne, down 3% (house rentals were flat).