Explore the latest unit and apartment rental and investment trends for 2024, including Victoria's New Temporary Off-the-Plan Duty Concession.
Increasing Affordability & Yields
The market for Units and Apartments is generally a more affordable option for investors and owner-occupiers alike. For property investors, many are looking at this segment at different stages to identify any arbitrage in terms of rental yield or capital growth opportunities.
In terms of yield, analysis collated by Suburbtrends is forecasting an average 27% increase in unit rents across Australia, compared to an 11% increase in housing rents.
For capital growth, PropTrack is forecasting unit price growth up 2% compared to houses at 1.5%. Across capital cities, there is a material shift in some areas. In Melbourne, unit price growth is currently outpacing houses by 75%, while Brisbane is close to 80%. In Regional Queensland, unit prices are almost doubling the pace of house growth.
So along with more availability, there is potentially a better rental yield and capital growth opportunity for investors in the unit market. First-home buyer activity is also increasing due to better affordability.
With capital growth comes a tightening of yields though, October figures from CoreLogic show gross rental yields are under some downward pressure, sitting at 3.47% across the combined capitals. A timely message to always have discernment when choosing the right investment property. Is a stronger regular income or the prospect for long term capital growth the underlying priority?
Supply & Demand
Part of these results can be attributed to supply restraints. For example, housing development approvals rates are down 12% from 2022, with rising costs, interest rates and ongoing labour shortages an obvious restriction for new stock. Insights from Realestate.com.au show that development approvals for units have dropped more at 23%, an indication that supply will be further impacted in the near term.
Apartment developments often incur more planning, construction and insurance costs than housing comparable to the sale price. Therefore, the projects currently being delivered are at the premium end and have higher price points.
Borrowing Prospects
Many Credit Providers are offering attractive rates for financing unit purchases. Though make sure you do your homework or get advice. Some factors to consider include property size, land size, location and density. More financing for unit tips are in this short summary from 2022 with corresponding trends.
A reminder that credit providers will add an interest rate buffer of 2-3% when assessing borrowing capacity, which can materially impact affordability.
Victoria: New Temporary Off-the-Plan Duty Concession
Changes to the existing off-the-plan concession, may mean previously ineligible applicants qualify for a temporary concession for off-the-plan purchases of dwellings. For contracts entered into after 21 October 2024, purchasers can deduct the construction costs incurred on or after the contract date when determining the dutiable value of the property.
The temporary concession is available to all purchasers, including investors, companies and trusts, without the requirement to be eligible for either the principal place of residence duty concession or the first home buyer duty exemption or concession. The Victorian State Revenue Office has more information, including FAQs and examples.
Many see this as the Victorian Government taking overdue action to increase the housing supply. With the recent changes to land tax in Victoria being a contributor to sliding median property values in comparison with other states, any positive incentives are welcomed.
Significantly, investors account for around 32% of total housing finance in Victoria. While this is up from 27% three years ago, the land tax changes have been biting. These changes and the requisite price falls may tempt more investors back into the market in Victoria.
More Information?
Contact MCP:
(03) 9620 2001 or your Finance Partner
enquiry@mcpfinancial.com.au
Follow us on LinkedIN
The team at MCP Financial Services has specialised expertise in structuring complex debt arrangements. We can assist with review and restructuring, refinancing and renegotiating.