Unit vs House in Australia: Which is the Better Investment?
When it comes to buying property in Australia, there are two main types of properties to choose from: units and houses. Both have their own advantages and disadvantages, so it’s important to weigh them carefully before making a decision.
Units
Units are typically smaller than houses and are located in apartment complexes. They often come with shared amenities, such as pools, gyms, and laundry facilities. Units are typically less expensive than houses, and they can be a good option for people who want to live in a central location.
Houses
Houses are typically larger than units and have their own yard and garage. They offer more privacy and space than units, and they can be a good option for families or people who want to live in a quiet neighbourhood. Houses are typically more expensive than units, but they can also appreciate in value more quickly.
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Unit vs houses: Which is the better investment?
The answer depends on your individual needs and circumstances. If you’re looking for a smaller, more affordable property in a central location, then a unit may be a good option for you. If you need more space and privacy, then a house may be a better choice.
If you’re an Australian expat living overseas or a foreign buyer, it’s important to factor in the cost of buying and owning property in Australia. The cost of property in Australia can vary depending on the location, the size of the property, and the type of property. You’ll also need to factor in the cost of stamp duty, land tax, and council rates.
It’s also important to consider the rental market in Australia. The rental market is strong in most parts of Australia, so you should be able to find tenants for your property easily. However, the rental yield (the amount of rent you earn as a percentage of the property’s value) is typically lower for units than for houses.
Here are some pros and cons of investing in units and houses to help you narrow down your choice:
Pros of investing in units:
- Affordability: Units are often more affordable than houses, making them an accessible entry point for property investment.
- Lower maintenance: In many cases, the maintenance and upkeep of common areas, building exteriors, and amenities are taken care of by a body corporate or homeowners’ association, reducing the burden on individual unit owners.
- Amenities and convenience: Units are often located in urban areas, offering proximity to amenities like shopping centres, restaurants, and public transportation. They can be appealing to tenants who value convenience.
- Potential for higher rental yield: Due to lower purchase prices and the possibility of multiple rental units within a single building, units can potentially provide higher rental yields.
Cons for investing in units:
- Strata fees: As a unit owner, you may be responsible for paying regular strata fees to cover shared expenses, such as building maintenance and management. These ongoing costs can affect your overall return on investment.
- Limited control: As a unit owner, you will have limited control over the management and decision-making processes for the building or complex. Some decisions may be made collectively by the body corporate.
- Capital growth potential: Units may have lower capital growth potential compared to houses in certain locations, although this can vary depending on the specific market conditions.
Pros of investing in houses:
- Potential for capital growth: Houses, especially in desirable locations, tend to have good potential for capital appreciation over time. Land value and scarcity can drive up house prices in sought-after areas.
- Flexibility and control: As a house owner, you have more control over the property and can make modifications, renovations, or expansions according to your preferences and market demands.
- Land ownership: Houses typically come with land, which can be an appreciating asset on its own. Land scarcity in prime locations can lead to increased property values.
- Diverse tenant pool: Houses often attract families or individuals looking for more space and privacy, broadening the potential tenant pool.
Cons for investing in houses:
- Higher purchase cost: Houses generally have a higher entry cost compared to units, which can pose a barrier to some investors.
- Maintenance and upkeep: As a homeowner, you’ll be responsible for all maintenance, repairs, and upkeep of the property, which can be more time-consuming and expensive compared to units.
- Location limitations: Houses in desirable locations may be limited or unaffordable, potentially requiring investors to look at properties in less sought-after areas.
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How banks view units and houses
Banks typically view units and houses differently when it comes to lending. Units are often seen as a lower-risk investment than houses, as they are typically less expensive and require less maintenance. This means that banks may be more willing to lend money to borrowers who are buying units, as they are seen as a lower-risk investment.
However, there are some factors that can make units a riskier investment than houses.
Here is a breakdown of factors that banks consider when lending to borrowers who are buying units and houses:
Units:
- It may require a larger down payment or more equity due to lower loan-to-value ratios.
- Valuations may be lower compared to houses.
- Higher rental yields may be considered due to lower purchase prices and the potential for multiple rental units.
- The financial stability of the body corporate or homeowners’ association is a consideration.
- Location and demand play a role in the bank’s assessment.
Houses:
- Banks may offer higher loan-to-value ratios.
- Houses may have higher valuations due to perceived capital growth potential.
- Rental income potential is considered.
- Desirable locations and high demand are viewed positively.
- Individual maintenance responsibility is a consideration.
The cost of owning: units vs houses
The cost of investing in a unit or a house can vary depending on a number of factors, including the location, size, and condition of the property. However, in general, units tend to be less expensive than houses. This is because units typically have smaller footprints and are located in more densely populated areas. As a result, units often have lower purchase prices and lower ongoing costs, such as property taxes and maintenance fees.
Price difference between units and houses
Here’s a comparison of the average purchase price of units and houses in 2023 in major states in Australia, including the price difference between a unit and a house:
| State | Average House Price (AUD) | Average Unit Price (AUD) | Price Difference (House - Unit) |
|---|---|---|---|
Sydney | $1,243,126 | $781,663 | $461,463 |
Melbourne | $915,005 | $597,939 | $317,066 |
Adelaide | $702,392 | $436,673 | $265,719 |
Brisbane | $798,552 | $492,481 | $306,071 |
Canberra | $987,450 | $600,628 | $386,822 |
Darwin | $588,972 | $381,831 | $207,141 |
Hobart | $740,100 | $539,720 | $200,380 |
Perth | $585,989 | $410,046 | $175,943 |
The average price across all of Australia’s capital cities for a house and a unit is as follows:
- House: $859,659
- Unit: $617,026
- Difference (house -unit): $242,633
This difference in price can be significant for first-time homebuyers or investors who are on a budget. In addition to the purchase price, there are also a number of other costs associated with owning a unit or a house. These costs can include:
- Property taxes
- Maintenance fees
- Insurance
- Utilities
- Repairs
These costs can vary depending on the specific property, but they are generally higher for houses than for units. This is because houses are typically larger and require more maintenance.
Unit vs houses: Which has the higher capital growth potential?
The potential for capital gains in units and houses varies depending on a number of factors, including location, the type of property, and the current market conditions.
However, in general, houses have historically had a higher potential for capital gains than units. This is because houses typically have a larger land component, which can appreciate in value over time. Additionally, houses tend to be more scarce than units, which can also contribute to their higher capital growth potential.
That being said, there are some cases where units can outperform houses in terms of capital gains. For example, units that are located in high-demand areas or that have been recently renovated may be able to command a premium price. Additionally, units that offer amenities that are in high demand, such as pools or gyms, may also be able to appreciate in value more quickly than units that do not offer these amenities.
Capital gains are not guaranteed. The value of any property can go up or down, and there is no way to predict with certainty how much a property will appreciate in value over time.
Unit vs houses: Which has the higher rental yield?
The rental yield of units versus houses can vary depending on factors such as location, property type, market conditions, and other factors. While it’s challenging to make a generalized statement, here’s a comparison to consider:
Units:
- Units often offer higher rental yields due to lower purchase prices.
- Potential for multiple rental units within a building can contribute to higher overall rental income.
- Strata fees should be considered as an ongoing expense that can impact net rental yield.
Houses:
- Houses generally have lower rental yields compared to units due to higher purchase prices.
- Houses can attract tenants who value space, privacy, and amenities, leading to stable and longer-term tenancies.
- Houses typically have fewer ongoing expenses compared to units, which can contribute to a higher net rental yield.
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Unit vs houses: Rental yield comparison
From the CoreLogic Home Value Index report for 2023, the gross rental yield for different types of properties across various capital cities in Australia are as follows:
| City | Gross Rental Yield for Units | Gross Rental Yield for Houses |
|---|---|---|
Sydney | 3.7% | 2.7% |
Melbourne | 4.2% | 2.7% |
Brisbane | 5.5% | 4.0% |
Adelaide | 5.6% | 4.1% |
Perth | 5.5% | 4.1% |
Hobart | 5.5% | 4.5% |
Darwin | 6.5% | 5.2% |
Canberra | 5.5% | 4.9% |
Note that the numbers are based on the gross rental yield, which doesn’t take into account costs like maintenance, insurance, and property management fees. For a more accurate picture of the potential return on investment, you might consider the net rental yield, which factors in these costs.
Unit vs houses: Ownership
When you own a unit, you are essentially buying a share of the property and the common areas. This means that you are responsible for a portion of the maintenance and upkeep of the property, as well as for following the rules and regulations set by the body corporate. The body corporate is a group of owners who are responsible for the overall management of the property. They typically make decisions about things like maintenance, insurance, and repairs.
However, when you own a house, you have complete control over the property and the land it sits on. This means that you are responsible for all of the maintenance and upkeep, and you are not subject to the rules and regulations of a body corporate. However, you also have more freedom to make changes to the property, such as adding on to the house or making renovations.
Unit vs houses: Depreciation, negative gearing, and other deductions
Depreciation, negative gearing, and other deductions can be a factor in your decision of whether to buy a unit or a house.
- Units tend to have more depreciation deductions than houses because they have more shared assets.
- Negative gearing can also be a more attractive option for units than houses because they are typically cheaper to purchase and have lower rental yields.
- When deciding between a unit and a house, you should also consider factors such as location, size, maintenance, and cost.
Choosing between units and houses for your next investment
As an expat looking to invest in real estate, the decision between units and houses requires careful consideration of various factors that can impact your investment strategy and objectives. Both options offer unique advantages and considerations, making it crucial to evaluate your specific circumstances and goals as an expat investor.
Units can be an attractive investment for expats due to their lower purchase prices, potential for rental income, and lower maintenance responsibilities. Investing in units allows for diversification within a multi-unit complex and can provide a steady stream of rental income, particularly in high-demand areas. Additionally, units often come with amenities and services that appeal to tenants, increasing the attractiveness and marketability of the investment property.
On the other hand, houses offer distinct advantages for expat investors seeking long-term stability and potential capital appreciation. Owning a house provides greater control over the property, allowing for customisation, renovations, and potential value-added improvements. Houses also offer more space, privacy, and a sense of permanence, which can attract higher-quality tenants or potential buyers.
Ultimately, the decision between units and houses depends on your specific needs, preferences, and financial situation.
Contact Odin Mortgage today to discuss your options, explore financing solutions, and gain expert advice on choosing between units and houses. Our team of experienced professionals is committed to helping you navigate the mortgage process and find the right home loan for your needs.
Get a free Australian mortgage assessment today.
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