Over the past two years, the price gap between houses and units in Sydney has been widening significantly.
Indeed, in some locations the chasm between house and unit prices has expanded by hundreds of thousands of dollars over that period of time.
What this means in reality for investors is that in some of our city’s most desirable locations, the buy-in price for strategically selected established units or townhouses can be as low as 30 per cent of the price of houses.
As the table below illustrates, the unit to house price ratio has dropped significantly over the last two years, across all parts of the City
Source: CoreLogic
Strategic selection required
This broadening price gap is creating opportunities for investors to purchase quality, well-located units in Sydney.
While the Sydney unit market has generally under-performed over recent years compared to houses, the current differentiation between the price of units and houses is distorted compared to long-term averages.
With the median price of houses in the Eastern Suburbs, Lower North Shore, Inner West, and the Northern Beaches now generally many millions of dollars, it’s obvious that affordability constraints are likely to impact these markets going forward.
On top of that, when you get to the point when many people, and especially young families, simply can’t afford to buy a house, even in less exclusive areas, then it stands to reason that more affordable options, such as established units and townhouses, will become real options for them.
Not everyone can move to outlying fringe suburbs, major regional areas, or even interstate to chase affordability because of work or family commitments after all.
More demand pushes prices higher
These affordability issues could push owner-occupier buyers into established units with larger footprints such as over-sized two- or three-bedroom units or those with courtyards or gardens spaces, including townhouses.
And this increasing demand from homebuyers is likely to result in upward price pressure on superior units and townhouses.
Likewise, savvy investors are already considering purchasing strategically located units in blue-chip locations because of the ability to secure a holding in some of our city’s most prestigious locations for a fraction of what a house would cost.
Again, higher investor participation rates in the unit market will be a boon for prices.
With most interstate borders set to be open before the holidays, as well as international points of entry not longer after, rental demand is set to strengthen, which will help to minimise vacancy rates and push rents and yields higher.
As you no doubt know by now, I always prefer older established units in desirable locations that are also in well-maintained smaller complexes that feature good floor plans and natural light.
In Sydney, investors should always avoid high-density locations in areas of high supply, because of the propensity for oversupply to occur, but also because this unit stock is generally inferior in every way.
History shows us that units as investments can be as successful as houses over the long-term – and especially when affordability constraints mean that purchasing a house is out of the financial question for investors.