About half of all Perth apartments are sold as investments, but getting the best return for your money means understanding the detail in the market. Here’s our three-minute guide.
Should I buy a one-bedder or two?
The rise in the number of one bed apartments has been a major shift in Western Australia, with this form of unit now making up about 38 per cent of new supply.
When deciding if they are a good investment option, though, it’s necessary to think about the end renter.
Already a quarter of households in WA have just one person, while another third of households comprise two members. Nationally, single-member households are expected to grow by 1.7 million over the next 20 years.
One-bedroom units can be appealing to singles and couples, but single parents with one child (a big part of the two-person household camp) would rather have two bedrooms to share. If the rent is high enough that it will need to be serviced by two incomes, two bedrooms might be a better choice as you can concentrate on both couples and housemates.
Colliers International Head of Property Management Paula Jones also warns that one-bedroom units have a shorter overall occupancy, as singles find love and move on, renters decide they need a housemate to split bills or couples decide to upgrade for additional space.
At the same time, the entry point for a one-bedroom can be significantly lower – often $120,000 less than the cheapest two-bedroom on offer. Renting out a one-bedroom bought for $370,000 at $400/week would yield just over 5.6 per cent. Your two-bedroom unit bought for $500,000 would need to rent at $540/week to get the same yield and would cost more in interest over time.
If you are seriously eyeing a one-bed unit, though, look for one with a spacious bedroom and flexible layout – even a study that can be used as a second bedroom if required.
Where should I buy?
There’s no doubt Perth’s vacancy rate is higher than in previous years but there are some areas where demand still matches or outstrips supply. Anything you buy off the plan will also be offered in a market several years from now, with a very different demand profile.
To get a sense of how the market in a particular area is performing, use free tools such as those on offer through REIWA.com.au and Realestate.com.au that can tell you how many renters are chasing property in a given market.
Realestate.com.au shows more than 400 people are looking for every unit on the market in Floreat, an area with few apartments available for rent – just three in February. In Perth, where there were 147 two-bedrooms up for grabs at the same time, there were just 190 renters per unit. Overall, Perth had more renters, therefore, but there was also far more supply on offer.
How soon will I double my money?
The old rule of thumb is that property values double every decade and while that might have been true once, as prices rise the speed of doubling declines.
According to RP Data, between January 2006 and January 2016, home values across all capitals grew 72 per cent (some way shy of doubling) with 64 per cent growth seen in unit values.
Only Melbourne saw home prices double in that time with growth much more subdued in Brisbane, Adelaide, Hobart, Canberra and Perth.
In Perth, growth over the past 10 years was – perhaps surprisingly – a low 44.7 per cent, but that is in part because values in the previous 10 years had seen such a surge.
Between 1996 and 2006 values in Perth shot up 175.5 per cent, so the most recent growth is off an already high base.
It also varies by suburb. REIWA figures show units in Floreat have grown 11.6 per cent on average a year for 10 years. Salter Point is a stand-out. Its unit values have shot up 27.3 per cent on average each year in the past five years, and the median price for units doubled between 2014 and 2015.
If wages remain constrained it’s not likely unit prices will double across the board in the next decade, but low interest rates offset constrained capital growth to some extent.
Like this story? Read more advice on apartment living in our High Life magazine, available from our sales offices.