Are Houses the Best Property Investment?

Are Houses the Best Investment?

I have found that buying houses that have land content is always a better investment than buying apartments or townhouses. If you understand where to look, you can buy houses for the same price as apartments and get higher rental yield with much lower outgoings. Land is the most valuable part of an investment; it appreciates in value over time more quickly than apartments and townhouses.

One reason land will appreciate faster than other types of properties is that it has a much more limited supply, due to the rate that it is released into the market. As Australia’s population grows and demand for housing increases, the availability of land for development decreases. This scarcity drives up the price of land, making it a valuable asset. Additionally, if you find land in an area that is locked by mountains or water, it makes it appreciate quicker because there is an immediate land supply problem.

Apartments and townhouses are structures that depreciate over time, meaning their value decreases over time. A lot of the time, these properties are one of many and there is limited uniqueness with high availability. This means that the appreciation is much less. Developers can build hundreds of apartments and townhouses in areas where only a few houses would be able to fit. This coupled with the high outgoings on a complex of apartments or townhouses, like body corporate fees, will reduce your overall investment’s yield.

Here is a good example.

In general, the average capital growth rate for housing prices in Australia has been approximately 6% per year over the past 30 years, while apartments have seen approximately 3% in capital growth. Which is 50% less returns then houses, plus much higher outgoing fees like body corporation fees.

A house that gets 6% capital growth compounded annually for 5 years, starting with a value of $500,000.

Year 1: $500,000 * (1 + 0.06) = $530,000

Year 2: $530,000 * (1 + 0.06) = $562,800

Year 3: $562,800 * (1 + 0.06) = $598,568

Year 4: $598,568 * (1 + 0.06) = $637,322

Year 5: $637,322 * (1 + 0.06) = $679,185

So after 5 years of compounding 6% capital growth per year, the value of the house would be $679,185. The moral of the story is if you understand how to find good houses or blocks of land and assess their value before buying, it’s likely that the numbers will stack up far higher in your favour, especially over the long term.

In conclusion, land in my opinion is the most valuable asset. It can appreciate in value more quickly than apartments or townhouses. The scarcity of land, rezoning potential, and equity growth opportunities are just a few reasons why land will be a better long-term investment. This doesn’t mean that any house or block is a good purchase; it just means if you do your research, you will likely have a better outcome.

If you would like to learn more about areas that are performing well and showing good growth in land values, feel free to reach out and we can discuss further.