Older-style apartments race ahead

Buying an apartment, rather than a house, is a smart move for a first-time property buyer or investor.

Shrinking household sizes, Australia’s ongoing housing shortage and a fast-growing population are all factors that point to a high-growth future for well-located units.

However not all apartments are equal. At Nelson Alexander, we are seeing strong demand and robust price growth for Art Deco and other vintage flats from the 1950s to the 1980s. We’re very confident these demand trends will continue in 2015.

New-build units and older-style apartments both have their plus factors.

With a new unit in a medium or high density residential building, the quality of the interior finish is going to be smarter and more up to date compared to an older unit. This spic-and-span newness will appeal to many tenants, and an owner can also expect less wear and tear and lower maintenance costs.

But many property experts recommend investing in an older-style unit in an established building rather than buying a new unit. This advice is linked to the scarcity value of older apartments.

Older apartments in the inner suburbs are in high demand. There are more potential buyers for older units compared to new units, and the scarcity of these apartments is only likely to increase. That’s because there is no more land available in inner Melbourne to replicate older apartment blocks and their high land-to-unit ratios.

There are fewer constraints on the supply of new units, particularly in the Melbourne CBD where former commercial sites are regularly transformed into apartment towers.

One of the risks of buying a unit in a big new multi-dwelling tower is that there are a large number of properties occupying a small piece of land.

The chances of a high-rise unit’s value depreciating over time is greater compared to other classes of property because the unit asset is more building than land.

By contrast, walk-up-style apartment complexes in such areas as Fitzroy, Northcote, Coburg, Pascoe Vale, Ivanhoe, Kew and Carlton can offer much better rates of long-term capital growth.

These buildings generally have only two or three stories and they don’t have an expensive-to-operate lift or elevator.

It’s vital to look closely at the investment fundamentals of a suburb or area as to whether you buy old, new or off the plan.

You should be aware that when you buy into a block of 150 or 200 units, the apartments tend to look the same. This does not help resale values.

When you buy into a block of 150 units, there is always going to be someone in the apartment complex who has to sell because they are under financial stress.  When somebody sells at a low price because they want to get out quickly, that can put downward pressure on the prices of similar apartments in the building.

Apartments dating from the Art Deco era through to the late-1970s may lack the contemporary edge and city-skyline views of a high-rise unit, but they often produce a higher return-on-investment.

In an established, low-rise apartment complex the land value assigned to each unit can be six or seven times greater than the land value apportioned to a newly-built unit. A high land-to-unit ratio delivers strong capital growth, especially over the long-term.

At Nelson Alexander, we know that tenants appreciate the extra room of older style apartments. A two-bedroom 1970s unit often has 100 square metres of internal space compared to the 65 square metres offered by many modern two-bedroom units.

When developers built unit blocks between the 1920s and 1950s, land was abundant. Builders did not try to cram as much as they could onto a block under development. That mentality, even if it was to become a little less generous, can also be seen in apartment blocks constructed in the 1960s and 70s.

The positive consequences of this are that older apartments are generally bigger in size, their construction is generally more solid and there is a higher land component per apartment.

If you are considering selling an older-style apartment, Nelson Alexander staff can detail the local demand drivers in your property’s area and help you achieve the best possible price.