By Lachlan Walker, Director at Place Advisory
If you are looking to invest in an apartment, one of the first decisions you need to make is whether you should buy in a big, high-rise building or something more boutique. This article will aim to shed some light on this issue, focussing on apartment buildings in Inner Brisbane. First, we will look at the numbers and see which building sizes generally perform well, particularly in terms of capital growth. And then we will delve into the usual differences between these building types, addressing topics such as body corporate, noise levels and lifestyle.
*For the purpose of this report, a high-rise apartment building is one which has 41 or more apartments, a mid-rise building is one with 11-40 apartments and low-rise buildings have 10 apartments or less.
Part 1: Market Comparison
High-rise apartments generally account for the lion’s share of Inner Brisbane Apartment sales, particularly in recent times. The six months of sales activity ending at June 2015 saw a total of 1,557 apartments sold in Inner Brisbane, 45% of which were high-rise apartments. Low-rise apartments saw slightly fewer apartments sold during this period, accounting for 30% of apartment sales, with mid-rise accounting for the remainder.
*It is important to note that there is a lag in the sales data available for new apartment sales as off the plan sales are recorded at the date of settlement. Therefore, it is important to note that the actual number of new apartment sales in recent periods will be higher than what is shown in the chart above. Click here for a recent overview of Brisbane’s off the plan apartment market.
Inner Brisbane Apartment Sales – Past Ten Years
How Many Apartments Sell In Each Price Bracket?
Apartment Price Points – Six Months To June 2015
Capital Growth Comparison – Where is growth realised?
Capital growth is where the big money is in real estate. Sure, having a strong rental return helps to manage debt, but nothing can beat selling a $300,000 property for $600,000. As Place Advisory reported here, capital growth has generally been declining in Brisbane over the past five years. This is indicative of the current market and stage of the real estate cycle. Increased levels of capital growth will not be observed across Brisbane until price growth occurs. However, as discussed in our resales report, some areas Brisbane are outperforming at this point in time. We will expand on that analysis here and look at how building size affects capital growth.
Capital Growth by Building Size
As can be seen in the chart above, it is low-rise apartments that have generally achieved higher capital growth over the past five years. This is true in the current marketplace, with sales activity for the past 12 months seeing low-rise apartments achieve capital growth averaging 5.4% per annum on resale, compared to 4.7% per annum for mid-rise and 2.8% per annum for high-rise. Many argue that this is due to less competition in boutique buildings when it comes time to resell (see here and here).
Place Advisory would stress that each apartment must be assessed on its own merits and every case is unique. For instance, the top three individual apartment resales over the past 12 months in terms of capital growth were in mid and high-rise buildings, despite low-rise buildings having a higher average capital growth overall.
If you are looking to achieve high capital growth when you resell your apartment, we recommend that you consider who the end purchaser will be, what competition you will have when you do resell your apartment and how you may be able to improve you apartment’s value over the time that you own it. Remember that in property timing is everything. The longer you hold you apartment, the more likely you are to realise capital growth. The price at which you purchase is also important – negotiate a good deal, but be sure to seek quality.
Map: Inner Brisbane Apartment Landscape
The above map shows the locations of all apartment buildings in Inner Brisbane, revealing the density of development across the region. The construction of high-rise buildings (dark green on the map) in Brisbane has historically been CBD-centric. Outside of this, high density dwellings developed outwards along major transport corridors and along the riverfront; in particular, there are a large number of buildings along the Newstead and New Farm Reach of the Brisbane River, as well as West End, Kangaroo Point and South Bank. Mid-rise buildings (bright green on the map) follow the same general pattern, tending to be located near major transport corridors and the riverfront. These buildings have also spilled into residential streets and suburbs, particularly in recent years as the demand for higher-density inner city dwellings has increased in Brisbane. Finally, low-rise apartment buildings (orange on the map) further fill in suburban streets, as they tend to be large house blocks that have been split.
Part 2: Points to be Mindful of When Purchasing
Many apartment buyers ask whether they should purchase in a high-rise building, or stick to the more boutique blocks that populate the suburbs. Ultimately, the type of apartment that is purchased comes down to the needs and goals of the purchaser. When purchasing, knowledge is key; below are some key facts that can be practically applied to the buying process.
Large, high-rise buildings with many apartments will usually have added amenities such as a pool or gym. These features can be a bonus for property investors as they may be attractive to tenants. There is a downside, however. With each added feature, body corporate rates increase; meaning higher annual fees that must be paid by the owner. It is therefore important that the extra rent that can be attracted by the presence of these features in a building absorbs the increase body corporate rate.
If you are purchasing your property with the view of selling it later on, it is important to know who your market will be when you choose to do this and who you will be competing with. In a large building there is often repeating floor plans of certain apartment types; there may be 50 other one bedroom apartments in your building that are the same as yours. In this scenario it is possible that you will have competition when it comes time to sell. Something that could really hurt a sellers chances of getting the best price possible is if there is a distressed sale of a similar apartment type in the 12 months prior to putting their apartment on the market. Potential buyers could use this sale as an excuse to pay a lower price for other apartments in the building. Of course, the possibility of this occurring will be minimised if you buy a unique apartment on a good floor with a good aspect.
Other Lifestyle Factors
Whilst it is true that historically boutique buildings have seen higher capital growth than their high-rise counterparts, there is an exception to this – an apartment with a view. Time and time again it has held true that buyers will pay a premium for a view. Whether it is of a skyline, a river or the ocean, wealthy buyers will fight to get properties with a spectacular outlook. In Brisbane (and Australia’s other capitals) many of the best apartment views are from premium apartments in high-rise buildings.
Privacy and noise concerns are also a factor to be considered, regardless of whether you are an owner occupier or investor. High-rise buildings generally offer less privacy, particularly in the outdoor areas. They are also often in busy areas, around employment nodes and entertainment which create noise. The positive flip side to this is that the location of these buildings can attract tenants.
**For more information: http://stateofplace.com.au/high-rise-or-boutique-which-building-you-should-buy-in/