Should you buy an Apartment in Melbourne?

Just like any other large metropolitan cities in the world, Melbourne is full of apartments Historically, apartment living aren't a new phenomenon. Apartments have have been around for over 150 years.

Open any real estate for sale websites or newspapers, and you are bound to find advertisements selling apartments. Some buyers prefer to buy apartments, while some advocates against buying apartments.

What is the story? Why are there such a big difference in recommending apartments?

It is a fact. Just like any other types of properties in Australia, apartments are not for everyone. So, as a home buyer or property investor what do you need to know about buying apartments? In particular, what do buyers need to know about buying apartments in Melbourne?

Where can you find Apartments in Melbourne?

In Melbourne, apartments are typically in inner Melbourne CBD and around key public transport hubs, such as train stations, major bus interchanges, etc. They are also usually near amenities, such as supermarkets, food centres, hospitals, shopping malls, etc.

What do you need to know before buying Apartments?

Just like any other properties, you need to do your due diligence before you decide if an apartment is right for you. You need to consider what you want, vs what the apartment has to offer:

1. Location

2. Price

3. Amenities in the apartment

4. Amenities around the apartment block

5. Transport

6. Car Parking

7. Body Corporate / Strata Fees

8. Growth

When Should You Buy Apartments in Melbourne

There is no doubt that apartment living is appealing. It is convenient, it is low maintenance. What are the other advantages of apartment living?

1. Convenience. Apartments are usually situated in city centre, town centres and major activity centres, and as such, it is located usually within walking distance of major amenities. Food, shops, groceries, etc.

2. Price. Apartments are usually lower priced than a similar sized house / townhouse in the area. And this is because the cost of the land is shared with between 3 to 100 other property owners. You're essentially buying a space in the air to live in.

3. Amenities. As briefly mentioned in #1 above, there is usually good amenities in and around the apartments. Some better equipped apartments have their own swimming pools, library, gym, movie theatre, etc.

4. Good Public Transport. Because apartments are usually located in city centres and town centres, they are usually well serviced by the public transport system.

5. Car Parking. Some apartment comes with your own parking lot together with the title. All you need to do, is to park, and walk up to your unit. How convenient is that? Car parking also has a flip side though, and we will cover that in the next section.

6. Low maintenance. Because of its relatively small size, and a lack of personal green space, there is a lot less maintenance. There is no need to mow the grass, no need to maintain the flowerbed.

7. Yield. Apartments can be higher yield investment properties, as their entry prices are lower compared to a typical townhouse or house.

What Should You Consider When Buying Apartments

As with anything, there is a downside to apartment living. The low price and convenience, comes at a price, and it can be a hefty price tag, if you buy the wrong apartment or are unprepared.

1. Amenities. While it is good that the well-appointed apartment comes with their own set of amenities, these facilities come with a price tag. Someone has to pay for them to be built. Someone has to pay for the ongoing maintenance.

2. Space. The sweet spot with apartment buying in Melbourne is the typical average sized 2 bed or the compact 3 bed apartments with 1 or 2 bath and 1 car park. Most of these apartments in Melbourne CBD are around 55-75 sqm in size and priced within the first home buyers' budget of between $550-$800k. If you need anything bigger, you will realise prices rise pretty steeply from there. An average sized 3 bedroom apartment in Melbourne can easily cost around $1 million or more.

3. Strata Fees. So, the apartment has everything you need? Gym, Spa, Swimming Pool, Cinema, etc? Someone has to maintain the amenities and facilities in the apartment. And someone has to pay for them to be built and maintained. And that someone is not coming from the developer nor strata manager. Cost of maintenance and repairs to common facilities such as swimming pool, gym, lifts, ceilings, heating / cooling / lighting and insurance cost for common areas are shared with apartment unit owners, through the Strata Fees. These strata fees are paid usually quarterly. Some strata managers may allow you to pay monthly or annually. Strata fees ranges from a couple of thousand dollars annually for a basic apartment to around $10k-15k annually for the better equipped apartments. Always find out what the strata fees are, and include that in your budget and due diligence. On average, these annual fees are approximately 1-2% of the purchase price when new. IE, if the apartment is sold for $800k, expect to pay around $8,000-$16,000 in strata fees annually. How much you pay is dependent on many other factors, such as amenities, quality level, development / maintenance plans for the building, etc.

4. Car Parking. It is all good if your apartment unit title comes with a parking space. However, if it does not and you need a car park lot, you are out of luck. As apartments are usually located in city centres and town centres and other high density zones, public car parking or additional parking lots will be an ongoing problem. They can either be difficult to find or they will be expensive. You should also consider that visitors are less willing to visit you, if they will be having problem parking their cars.

5. Growth. Capital growth (or the lack of it) in apartments are usually a problem, if capital growth is your strategy. As property buyers, you need to know that land price grow, while building price depreciates. Now, because you are sharing that piece of land with up to a hundred other property owners, growth is shared (usually not equally). The next concept you need to understand is supply-and-demand. Low supply and high demand is what drives prices up. And here is the problem. In most Australian cities and towns, there is a chronic oversupply of apartments. And thousands more are being added every year. Yes, while prices of new apartments are getting more expensive, it is important to note that it is rising only for NEW apartments, due to the rising labour costs, material costs, and marketing costs (aka selling agent commission). Prices of established / resale apartments have largely been stagnant (if not fallen) for years. Very often, buyers of new apartment ended up selling their properties at a significant loss. Losses of hundreds of thousands or more are not unheard of.

6. Cost of Utility Supplies. Suppliers of basic utilities such as electricity, gas, water, etc, are smart. They work with apartment developers to embed their electrical, gas, water and internet access networks into the building. And in return, they get exclusive rights to sell electricity, gas, water and internet / NBN to the building occupants. These are called networked utility suppliers. As with any monopoly supplies, occupants and landlords simply have to pay whatever the supplier charges. They are unable to shop around for better deals. And it is not uncommon to see charges can be up to 50-100% higher than in the more competitive open market.

7. Build quality. As there are simply too many apartments for local consumptions, many are being sold overseas to unwary investors. Developers know this, and many are being built with overseas investors in mind. What does this exactly mean? Developers know overseas investors almost NEVER see the actual property they are buying / bought. Thus, as long as the overseas investors can see glossy, well presented photos of some units, they are prepared to buy. It does not matter that the quality is sub-standard, or if poor quality parts and labour are being used. The overseas buyers would not know. Many of these low budget parts look just like a quality product in photos. And if things fail, it will be the owners responsibilities to repair/replace them. Property managers can help to organise the repairs but the costs are always charged to the landlords. So, where can you find good quality investment properties? Investment properties are unfortunately not market overseas. As there is no need to. Local demands out-strips supply. If you want a high quality apartment, you have to buy one which is marketed locally, to the locals. Our buyers advocates buying service can help buyers (including international buyers) buy good properties. Get in touch with us.

8. Maintenance complexity. If you think apartment living allows you to avoid contact with neighbours, you will be very wrong. When things fail, maintenance can often be a major issue. Simple maintenance issues may involve many more neighbours, with each blaming the other, and not wanting to accept responsibilities or costs for the repairs. Eg, a simple leak in the water supply may affect 2 or more adjoining neighbours. A leak in the shower area will usually affect the unit below you. And cost of repairs would usually be shared between the neighbours and/or building occupants.

Conclusion

Apartments plays an important role in the housing market. They usually offer an affordable entry point to property buyers, convenience and low maintenance. But before you buy that apartment, there are things you need to consider. If you are still unsure, get in touch with us.

Or if you are after good quality investment properties, get in touch. These investment properties are unfortunately not marketed overseas. As there is no need to market them overseas, as local demand out-strips supply. Our buyers advocates service will help buyers and investors (including international buyers) buy high quality properties not marketed overseas. Get in touch with us.