Property Hub - Investment Insights & Inspiration - Realty Talk: Units vs Houses and Capitals vs Regions

Episode Date: March 16, 2024

Two questions we are asked over and over: Are units a better investment than houses?and Should I invest in the regions or capital cities?   This week we set out to help with answers to both of these.  Bushy gives us his take on the location - city or region and he seeks Terry Ryder's thoughts on houses and units. Fair to say that there is no one answer, so what we will do is give you some sound grounding so you can make the decision that best suits your structure and strategy. NEW – join our Facebook group, The Property Hub Collective: https://www.facebook.com/groups/1857513011165686 Join the Property Hub community on Substack! Sign up to get Australian property news, opinion, and episodes in your inbox: https://propertyhubau.substack.com/ Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Hello and welcome to this week's Realty Talk show. Two questions asked over and over. Are units a better investment than houses? And should I invest in the regions or should I look at the capital cities? Well, this week we set out to help with both of those. Bushy gives us his take on the location. Is it city or should it be the regions? and he seeks Terry Ryder's thoughts on houses versus units now it's fair to say

that there is no one answer so what we're going to do is give you some pretty sound grounding so that you can make the decision that best suits your structure and your strategy but just before we start I want to thank our supporters and content partners Realty BMT Tax Depreciation Know How Property Finance, Get Rare Property and Apiro Marketing. And if this is your first time with us, welcome. You're going to find us on all podcast players and through the Southern Cross Austereo Network. If you like the show, certainly hope you do, please hit the subscribe button, help us to continue to bring you the best guests every week. Don't forget too that you can join

the conversation anytime on Facebook at the Property Hub Collective. And we'll be back in just a moment to start this week's show. 1-300-728-726 today for an obligation free quote. Realty Talk and your host, Bushy Martin. Now, for as long as I've been involved in property, which scarily is now over four decades, the guiding mantra has always been that you need to go for growth by buying houses and go for cash flow by buying units. But is this really true?

Is this universally an unwritten law of property investment? Well, as you're about to hear, today's highly respected guest is putting this to the test and the results are likely to surprise you. I'm talking, of course, about our show favourite, Terry Ryder, a leading property industry researcher and writer who's been studying residential property now for over 35 years. We must be in the game for about a similar period, Terry. And he's published four great books. And of course, he's the founder of well-respected property research house, hotspotting.com.au.

So if you're serious about property and the ability to identify the best opportunities around the country moving forward, then you can't afford to ignore his insights. So welcome back to the show, Terry. Thank you, Bush. Always good to come on and talk about real estate with you. And one of the things that always gets me excited about what we do with real estate research is coming across something really new and different, something dynamic that's a game changer.

And I think that today's topic of discussion is one of those things. Absolutely right. And what I love about your approach, mate, is that you let the research do the talking rather than create a narrative and get the facts and figures to suit the story. And as I guess I mentioned in the opening, conventional wisdom on long-term performance has constantly reinforced that houses on land perform better than units for capital growth,

while units perform better than houses from a rental yield cash flow perspective. But based on your recent research and data, does this actually still hold true no i don't think it does i think it's changing has changed in some locations and more and more we're coming across individual locations where we're seeing out performance by units other houses in the same location both in the short term and the long term on price um almost always the the unit median yield is better than by houses and quite often and we're also seeing instances where the days on market are much shorter for units, and partly it's to do with price

because it's quite common for in a suburb of a city to find that the median unit price is half or less than the median house price, and that's part of the equation, not the only part, but that is part of the big reason why we're seeing this paradigm shift happening. Yeah, okay. Well, I'd love for you to sort of let us know what you think is actually driving the stronger unit and apartment performance in recent times and in some areas then. Yeah.

What we started to notice as we do our quarterly research in the sales activity, something we do that very few other people do, I find, and we're always interested in the trends that we see charting sales volumes suburb by suburb, town by town. We started to notice in the last six to 12 months that locations that had a very high component of units and townhouses in their dwelling mix were getting higher and higher demand. So we started to look at that. And so we started to notice that there was this trend emerging more and more. And I think it's driven by location. People can access what we might call a good location more readily by buying an attached dwelling than a house on land. It's also obviously about affordability because, as I said, quite often the median price for a unit is less than half

of a house in the same location. But also it's about lifestyle and there are more and more people driving the demand for attached dwellings for lifestyle reasons. People like that lock-up-on-leave, low-maintenance lifestyle. That suits a growing number of cohorts, I think, because we've got downsizers. are people who got to a certain age where the kids are grown they've got the four bedroom house too big don't want to be spending their their time weeding and mowing so they are downsized

to a quality apartment in a good location we've got lots of migrants coming to australia as we all know pumping up our population growth in really large numbers and many of them come from cultures and nations where attached dwellings are the norm you know the house on a big block land is not what they're used to so they're also buyers of this type of property we've also got first-time buyers chasing affordability and just lifestyles you just like that lifestyle where you can lock up and leave and go away overseas perhaps or um low maintenance so it's there's all those things in the mix and it's a little bit hard to separate one from the other when with individual buyers but i think it's all on play yeah and then i guess that's sort of the

The reducing sizes of households is probably leading in that direction as well. But I'd love for you to share some examples of where you've seen apartments and units that are outperforming houses from a capital growth perspective, if you can, please, Terry. Well, you know, in the course of the day-to-day business of what we do, I'm often calling up individual suburbs from our research sources and looking at what's happening with prices, rents, yields, days on market, and we're noticing more and more instances where in the past 12 months, well, the most recent quarter,

the growth in the median unit prices exceeded that for houses, but also, perhaps more importantly, the 10-year growth average is in many cases now more for apartments than for houses. And then we look at the yields, and the yields are always higher for apartments and we are aware of course that apartments have an additional cost so that needs to be taken into account but quite often the the yield for an apartment might be you know the house might be three percent median yield but the apartment might be six percent so that's quite a substantial difference and then we look at days on markets and we're finding more and more instances

where on top of all of that um units are selling a lot faster in the same suburb so i'll give you some examples just to illustrate the point and we're not suggesting this is happening everywhere in Australia not happening in every suburb and town but there are more and more instances we're finding where it is. Lewisham in the inner west of Sydney median price is two million for houses way out of the reach of a lot of people but median price for apartments high eight hundred thousand so they're starting to become more affordable. In the last quarter median unit price up seven percent no change for houses in the last 12 months median unit price up 18 percent four percent for houses yields two and a half percent for houses four and a half percent for units and days on

market 62 days for houses 38 days for units so there's some quite stark differences in performance there if we go to probably where we're seeing more instances of this is in in Queensland both in Brisbane and in those lifestyle markets like the Gold Coast, the Sunshine Coast and elsewhere in Queensland. So Surfers Paradise iconic high profile market, median house prices 1.75 million, median unit prices 610,000 so about a third and that's a big attraction to people the median house prices dropped 5% in the last 12 months, the median

unit prices growing 13%, long term growth averages good for both seven and a half percent for houses but ten and a half percent for apartments and days on market 62 days for houses 27 days for units and the yields 2.7 for houses 5.4 percent for units so double so we could go through Labrador's another suburb in the Gold Coast region that has similar numbers we can go to the Sunshine Coast Malula Bar we've got a median house price 1.3 million for houses 710,000 units prices dropping for houses in the last quarter in the last 12 months but substantial growth in the units and the long-term growth average is eight and a half percent for houses

per year that's 10 year growth average eleven and a half percent for apartments and again much better yields and shorter days on mark for apartments other examples on the Sunshine Coast I've got an example of Nelson Bays in the Port Stephens region outside of Newcastle similar figures and then a number of suburbs in Brisbane where you might be paying over a million dollars for houses but less than five hundred thousand for units and you've got that again those examples where in the last 12 months prices growing faster for units than for houses in the same suburb long-term growth average is better yields are better days on market shorter

like i give you literally hundreds of examples but i think you get the picture um yeah now if sorry no no go on no you've given us some really broad spread of examples uh they're pretty much up and down the east coast uh and probably elsewhere go on terry what we're going share um look uh as i said earlier it's it's not happening everywhere yet but um i'm um quite stunned at how many examples i'm finding where there is this outperformance by unit markets over houses because what i'm used to is is quite the opposite uh over the time you mentioned you've been doing it for four over 40 years so have i um i'm well into my fifth decade of doing this and what i've seen for most of that time is that any location you care to pick houses on land

have been outperforming apartments it's that old cliche that land appreciates and dwelling depreciates but i don't think i don't know you know like a lot of cliches it's not necessarily gospel truth but i think more and more as we go along that's less and less true and um some of the factors that um that might drive a higher performance by by apartments apart from the ones that we've already talked about is that one of the things that many apartments not all offer that many houses don't is is view of course and you know a great view can be something that drives um prices upwards um but you know it's all about buy demand and more and more people are i think um demanding attached dwellings for all the reasons

we've talked about and that's why we're starting to see that um i'm growing instances of superior performance from from from units so um big paradigm shift and one that we should all be aware of massive paradigm shift and i guess it's you know to put some context around it the unit department market has struggled uh quite a bit in in recent years uh for a whole bunch of reasons so Given that, do you think this is just a short-lived sort of purchase price affordability catch-up issue or is there more to it, do you think? I think that's a long-term trend

because I think it's driven by demographic factors. You know, we now have a very powerful cohort called downsizers or right-sizers. We now have, you know, a growing cohort from migrants coming to this country from other parts of the world. we've increasingly got people seeking affordable lifestyle and this plays into that as well so it's very much on trend for some of the demographic changes we're seeing across Australia so I think it's got it's got legs I mean affordability alone I think it's

going to continue to give this trend power because it's becoming harder and harder for people to find houses that are within their price range of affordability in locations where they want to be. So the compromise, or maybe it's not even a compromise, and maybe it's just a better lifestyle for people to opt for an apartment, which is cheaper, but gives them access to that location that they want. Well, I'm pretty excited because it really does open up

a world of opportunity for people, both as tenants, owner-occupiers or investors in that context, given that it is quite a shift from what has traditionally been thought of to be the way to go, particularly from a capital growth perspective. So as always, Terry, I want to thank you for opening our eyes to this opportunity

and coming on to share that here on the show. You're welcome. Well, she, as I say, we're always looking for, more than any other thing, the thing we're looking for is change, something significant that shifted that alerts people to a new opportunity. And I think this is one.

I think this is a very significant one because it's not just talking about one location that's got dynamic factors. This is a trend that can play out right across the country. So people anywhere in Australia can be part of this one. But, you know, as always, it does require people to buy judiciously, to make sure that buying in good locations, do their due diligence.

And with apartments, there are dangers with, you know, buying in a big 14-storey high-rise with 300 or 400 apartments all the same. Again, with apartments, you need to be looking for points of difference, harder to find perhaps than with houses, but nevertheless, they exist. Maybe something boutique, well-located is the thing to go for. Very good food for thought.

and again sort of wrapping everything up from what you've said it's really clear that as we sort of continue to test and challenge the status quo and the validity of many so-called property opinions that eventually become generally accepted as truisms and then in turn are actually cemented for repetition into what's generally referred to as accepted laws and it's pretty clear that the old houses versus units debate is no different so like anything we need to be digging deeper than band-aiding the obvious symptoms and instead look beyond for the true causes than the direction of what's happening in property. And in this case, property performance is not about house or units. It's always about scarcity. So if a property in a place at a point

in time is limited in supply, but in high demand and is perceived to be good value and affordable by many, then it's going to outperform because good property investment is always about solving other people's property problems. So make sure you reach out to Terry and the team at hotspotting.com.au for all the good oil on what to buy, where and when. So thanks again for coming on and sharing this enlightening opportunity with us, mate. You're welcome, Bushy.

Hi, just before we go back to the show, I want to spend a few seconds and tell you about a book that was sent to me that's now become my go-to reference when I'm looking for inspiration about property investment. You know, sometimes it's not about knowing all the answers.

It's certainly more important to know what questions to ask. This book by Rasti is called The Property Wealth Blueprint. And it's one that you don't read just once and then put it away. It stays out as a reference. It's a book that you go back to time and time again, as I do, because it's packed with personal experience and with great examples of how to get property investment right. It's very frank. It's to the point. And as you can see here, I've needed to bookmark several points.

And I can tell you that it's a constant companion on my desk here. The remarkable thing is that it's absolutely free on Rasty's website, getrare.com.au. Get Rare, it's a gateway to a richer life. The website there for you again, getrare.com.au. So get this book, get it for yourself. Realty Talk from Property Hub on all podcast players. Now, one of the key questions that we keep hearing in recent years is where's the best place to buy property? Is it in the capitals or in the regions?

Now, for some time now, the pros and cons debate over country versus city has been raging backwards and forwards like a swinging pendulum, leaving many confused on where to buy their next investment property. now for many years the industry talk from most commentators was all about buying blue chip properties as close as possible to the inner ring of the city whatever that actually means which can all sound very logical at first glance then covid came along and disrupted the planet and pushed people to separate and seek space and there was an acceleration and explosion of migration from the cities to the regions as the growing exodus to lifestyle trend really started to ramp up.

And it felt like overnight, the conversation shifted from what demographer Bernard Salt well captured with the move from the fried egg model of city concentration to the scrambled eggs decentralisation with the move to growing regional lifestyle hubs. and since then the public debate has ebbed and flowed between country and city depending on who you're listening to and from where I sit I think a lot of the location bias between the regions and the cities is actually driven more by the hidden agendas of those who are pushing their own self-interest barrows. So for city-centric property players it's self-serving to push the capital concentration barrow using employers return to work requirements as the

excuse to justify the story around the boomerang effect of people returning to the cities. On the flip side, the continued tree change and sea change exodus to regional lifestyle, which was well underway before COVID actually kicked in, conveniently suits property players pushing a national, borderless and regional approach. So who's right? Should you buy property close to the city or spread your wings into growing regional hubs or perhaps a mixture of both. In my humble opinion, it's not a black or white or a right or wrong answer. I think both are right and both are wrong, depending on your property goals and your capacity, because there's just no one size fits all solution. And I think we're focusing on the wrong thing and potentially

asking the wrong questions. So my answer is that the decision to buy property in the cities or in the country, or a bit of both, depends. It depends on why you're buying, what the property needs to achieve, and what you can afford to buy. If you're buying a property primarily for capital growth that's affordable to hold long term, then you need to focus on scarcity in areas that are, or are about to, experience above our reach property value increases from committed growth drivers like the three I's of growth that I refer to as committed infrastructure and growing industry and growing incomes which is very similar to the high principle of population infrastructure and employment that we outlined on Get Invested recently alongside John Lenderman's

three P's of property, purchase power and population that he detailed in episode 285 of the Property Hubs Get Invested podcast back in July 2023. Now these growth driver models all revolve around scarcity of supply and growing demand. But it's not about chasing a current hotspot that may actually soon become a not spot and then buying whatever you can afford to purchase in these areas even if this is limited to a unit. Now this is a mistake that we see many property investors making because most of the growth comes from the area the land con and the land content should i say and the property profile it's about adopting the top-down scarcity model that i detail in my book the freedom formula so instead of chasing location and buying whatever you can get

which is the mistaken approach that many investors and many property professionals make you need to start with your purchase price power that you can actually achieve and afford and then identify the highest potential growth location around the country for a three to four bedroom home on a block of land in a tightly held high demand area which are at the sweet spot of the property growth profile in a location that's about to experience continued growth as you progress top down on the scarcity scale from state to suburb to street and finally to the property. This means that your affordable purchase price power for a standalone high demand home will drive where you buy and this could be in the city or in the regions. So it's not an or but an

and discussion because it all depends on you, your goals and your capacity. Similarly if you're converting to cash flow and your key driver isn't growth as a major concern then you're seeking the lowest priced property with the highest rental yield to optimize the cash flow and the residual dollars that end up in your pocket, which may be more likely in regional hubs, but may also be achieved in units or apartments in the capital cities or via high yielding commercial properties. So as you can start to see in here, there's no simple blank answer to buying property in the cities or in the country, because it all depends on you, your circumstances, your goals, your strategy and your capacity. So I urge you to smash through any fixed preconceived notions that you might have

developed on the capitals versus the regions debate and keep an open mind on the topic so that your elite team of independent property professionals, including your property strategist and buyer's agent, can give you the best chance of finding the highest potential performing property from amongst the 15,000 odd suburbs and towns and nearly 11 million residential properties right across our great nation in order to achieve your required growth or cash flow goals, which means that both the regions and the capitals provide good opportunities if you know what you're looking for and how to find it.

So it's not a matter of preferring one at the exclusion of the other. And to further quantify the sort of shifting tide of this debate, CoreLogic's recent Regional Market Update Report demonstrates this data-driven message, where it's clear that currently and in recent times, despite what you might be hearing from commentators in the media, property values in Australia's combined regions continue to outperform the combined capital cities, despite the post-pandemic normalisation of internal migration trends, affordability challenges and a reduction in borrowing capacity in the midst of our higher interest rates. And this performance variation will continue to

fluctuate between locations in the capitals and the regions as each area moves through the phases of the S-curve of growth over an average 15-year cycle, as each area is actually out of sync with other areas. So if you're investing for 15 years or more, timing the growth market in the location is not so important as it will average out in the long run. But if you need to try and catch the beginning of the average two to five-year growth spike in a location in order to turbocharge your equity growth to help fund successive property purchases, then trying to time the location does become more important, but it's impossible to guarantee. However, you can try and stack the odds in your favour to enjoy a short-term capital growth spike by knowing how

to analyse the right future growth drivers, and this is generally where a property search and selection expert, like a proven professional buyers agent that's a qualified REBA member, can support you. So don't chose location as your primary objective and instead start with the end in mind by working with a property strategist to define your lifestyle goals, then engage a savvy mortgage broker like the team at Know How Property Finance to determine your achievable and affordable purchase price power and then and only then start considering which national location amongst the 15,000 odd capital suburbs and regional towns that's at the appropriate stage of its out-of-sync growth and yield cycle will provide the best property opportunity, be it a home for growth

or a unit for cash flow, to suit your specific needs. And the right solution for you could be in the regional hubs or it could be in their capital cities, depending on your achievable spend and your required property profile. So it's capitals and regions, not capitals or regions. That's more food for thought. So stay tuned for more. Successful property investment is a game of finance. Do you have the right team and the right game plan? Realty Talk is brought to you by Know How Property. More than mortgage brokers, Bushy Martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs, tax, risk and stress while increasing your capacity for growth. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million in property wealth.

So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au This is Realty Talk, powered by realty.com.au And that brings us to the end of this week's show. Please make sure that you don't miss a single episode of Realty Talk or Bushy's Get Invested podcast, both delivered to you each week. And you can do that by subscribing to the Property Hub now

on your favourite podcast player or wherever you are listening to or watching this show. Also, join the conversation anytime on Facebook at the Property Hub Collective. Special thanks to our supporters and content partners, Realty, BMT Tax Depreciation, Know How Property Finance, Get Rare Property and DePiro Marketing. I'm Kevin Turner. On behalf of Bushy and the Property Hub team, we look forward to seeing you again next week.