In a conversation with nestegg, InvestorKit’s head of research, Arjun Paliwal, advised investors to look beyond apartments, with freestanding properties outperforming apartments regardless of location.
“Most investors who purchase apartments are usually doing it because of a lack of knowledge or a lack of support in order to purchase in markets that are outside of areas that are familiar to the investor,” Mr Paliwal said.
He noted that recent CoreLogic stats have shown that the strength in the housing market has not translated into strong growth for apartments.
House values have driven gains in the combined capitals index over the past three months, rising 1.1 per cent. While the rate of decline has eased, capital city unit values fell by -0.6 per cent over the same period.
“This trend towards stronger conditions in detached housing markets is evident across most of the capital cities. Relative weakness in the unit market can be attributed to factors including low investment activity, higher supply levels in some regions and weaker rental market conditions across key inner-city unit precincts,” Corelogic head of research Tim Lawless said.
What to look for when buying an apartment
While highlighting the investors should look into freestanding properties, the researcher explained what investors in apartments should be looking for.
“Investors should look for a point of difference,” Mr Paliwal said.
“Now a point of difference can be room sizes, bells and whistles as part of the complex or the overall appeal of the dwelling.
“The greater differentiators are likely to happen in boutique blocks,” he said.
The researcher said investors who are going to purchase an apartment might need to purchase an entire block to protect themselves against downside risks.
“Investors could look for areas where they can purchase a block of units rather than the singular apartment,” he said.
“With the whole block, it takes away the downside of apartments, which is supply. If an investor owns the entire block, if there are zoning changes, you can use it to your advantage.
“The second advantage is when sales in a block have distress or deceased estate or any types of sales that impact comparables – you can’t control that. However, when you own the block, it’s unlikely the investor will distress sale one of two apartments,” Mr Paliwal explained.
He also pointed out the investor can control the rents, with other investors unable to impact rental returns through changing prices.
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