The traditional ‘Great Australian Dream’ was always the house on the quarter acre block that had a big back yard for the kids.  Buying a house and land package as an investment was a no brainer as it had the most resales appeal and hence created good profits for investors.  This dream now takes most people further away from the city and employment as the populations of Sydney and Melbourne approach five million and the demand for well-located property increases.

 

This is driving Sydney-siders to more affordable locations.  In 2014 southern Central Coast house prices went up by an average of 30% in median value according to CoreLogic RP Data.  Affordability was the key with days on the market dropping from 84 at the beginning to 58 by the end of the year.  Interestingly commuting capacity was also increased with more train services to Sydney and return.  

 

The appeal of living on the Central Coast compared to living in the southwest or west of Sydney is showing in the higher growth.  The southwest median prices only grew by about 20% in value.  The train travel times are similar with one hour twenty minutes from the Woy Woy to Town Hall station via Gordon compared to one hour fifteen from Campbelltown or Springwood in the Blue Mountains to Central stations.

 

On the other hand, the Gen Y’s are the next generation to buy homes and have families, and they appear to be bucking this trend of desiring the detached house.  Many are choosing to live in apartments in the city.  They find the attractiveness of apartments is a trade off between travel time and convenience.

The median price of apartments in Sydney and Melbourne is 65% and 66% respectively of the median price of housing.  They are more affordable with the same money buying something considerably closer to the city.  Apartments in Annandale have a median price of  $735,000 and are ten minutes from the city.  In Eastwood the median price is $620,000 for an apartment with increased access via the Epping to Chatswood train line. 

 

The appeal of apartments may also be driven by another demographic.  The majority of the baby boomer generation is ready to retire over the next few years and many will down size.  No one knows if they will choose the well located apartment, and compete with the Gen Ys; or go for the smaller detached house. This demographic’s interest in apartments or houses will drive the prices due to the volume of people involved.

 

Other drivers to apartment living also exist.  Australia has a huge skilled immigration programme with highly paid workers qualifying for residency after two years and able to buy existing property.  What are their lifestyle preferences?  Do they prefer inner city living with access to the amenities or suburban detached dwellings a long commute?

 

Government policy also influences these changes.  They are trying to reduce our urban footprint and increase density in existing areas to save on their infrastructure costs.  The Queensland Government has the largest debt burden of all states and until recently was the biggest investor in infrastructure per capital.  Many Governments are now favouring public private partnerships for funding with users paying a fee.  

 

There is not currently a universal answer to the apartments versus houses for capital growth question.  We need to delve into each area to measure the five drivers of capital growth to assess the potential.

 

A key Sydney infrastructure project is the Sydney Metro that is currently funded is from the North West to Chatswood.  There is a second project proposal that includes connecting Chatswood through Barangaroo to the city and on to Bankstown that is due to commence in 2017 given appropriate planning permissions and funding.  Both Metro projects will increase services to the city from the current 120 to 200 trains per hour.

 

The second project will change the accessibility of the city to the suburbs towards Bankstown on this rail line.  The current median price of units in Belmore, Lakemba, Wiley Park, Punchbowl and Bankstown are unlikely to remain in the mid to low $400,000s.  Investment here is currently speculative; as the funding has not been provided for the second Metro project, however watch this space for news of that event.

 

All these factors auger well for price growth in apartments in well located areas over the next 5 years.

 

Rosemary Johnston co founded the Property Investment Association of Australia, and has been a board member since 2002. She now is a property investment advisor at Forrester Cohen Professional Services.