“I think any decline in popular international cities like inner and urban areas of Sydney, Melbourne and Brisbane, could be at least partially offset by the return in overseas migration.”
Apartment values in Sydney’s inner west suburb Newtown rose 0.4 per cent while house values slumped 7.5 per cent in February-April. Units have gained ground as the median house price rose to $1,782,653, which is more than twice as high as the unit’s median value of $872,492.
Port Melbourne, Balaclava outperform
In Sydney’s southern suburb Woolooware, unit values, which are two and half times cheaper than houses, climbed 4.9 per cent to $1.036 million while house prices dropped 2.5 per cent to $2.654 million.
Unit values in the inner Melbourne suburbs of Port Melbourne rose 1.5 per cent, and in Balaclava by 1.3 per cent. By contrast, house prices, which are also more than twice as high as apartments, have dropped 5 per cent and 5.1 per cent respectively.
“I think we could see greater weakness in houses than units because of the record gap in prices between them, while rising interest rates are impacting borrower capacity, which are all diverting demand towards units and away from houses,” said Nicola Powell, Domain’s chief of research and economics.
“Particularly in our higher-priced markets such as Sydney and Melbourne, it really becomes a crucial decision for buyers because what you tend to find is a buyer doesn’t really negotiate on their location, they’ll negotiate on the property type to stay in a particular area. So, they’re more likely to compromise on the size of the home or the type of property than location.”
The gap between house prices and units has blown out across the capitals since the start of the year, despite the slowing market, a CoreLogic analysis shows.
In Sydney, house prices are now 70 per cent more expensive than units – a jump from 66 per cent in January. The gap widened to 65 per cent in Adelaide, 41 per cent in Perth, 37 per cent in Hobart and 55 per cent in Darwin.
The difference in house prices and units has ballooned to a staggering 80 per cent in Brisbane – a record gap in any capital city.
By contrast, the gap somewhat narrowed in Melbourne and ACT as unit prices started to catch up. In Melbourne, houses are 59 per cent more expensive than units – a drop from 61 per cent earlier this year. In the ACT, house prices are 73 per cent higher compared to units, smaller than the 74 per cent gap recorded in January this year.
Sydney-based buyer’s agent Jack Henderson of Henderson Advocacy said more renters are turning to apartments amid rising rents and government incentives.
“Apartments appeal to first-home buyers and we’re seeing that market strengthening at the moment because of the government incentives,” he said.
“We’re seeing a lot of renters buying units because it’s more affordable than paying rent and a lot cheaper than houses.”
Looking ahead, the increased overseas migration, and the relative affordability of units compared to houses, as well as the recent upswing in new investor financing seen in February and March would likely help insulate the apartment sector, Ms Owen said.
If rental growth continues to outpace capital gains, increasing rental yields should help motivate investors who typically prefer the lower maintained unit segment, she said.