It’s exciting to be able to look back on a vast collation of information and draw meaningful conclusions.
Well… it is for data tragics like me, at least.
Our firm recently completed its 1000 Assets report for 2022. It’s a unique data source generated by analysing information from thousands of property depreciation schedules prepared by MCG Quantality Surveyors since 2016. In the process of doing these reports we collect a wide range of information about each owner and their property.
The report collates the data chronologically and divides it into subsets of 1000 properties each of which align very roughly to 12-month periods.
The study includes outcomes for each subset which paints a picture of behaviour at certain point in time. We’ve also tracked the outcomes to help identify trends over the past six years.
How investment assets are changing
In a previous article about this study, I discussed changes in the way investors are behaving toward their investment decisions, especially throughout the past two years. You can read about it by clicking this link.
In this article, I’d like to dissect how investment assets themselves are changing. This helps identify trends so investors make smarter decisions about what properties will find the widest appeal among both tenants and eventual buyers.
Investment property sizes are changing
The study revealed both investment houses and units are, on average, getting larger. Both have seen their floor areas increase by around 10 per cent since 2016.
Interestingly since 2019 the difference in size between units and houses has reduced. Houses were almost twice the size of units in 2019. Now, they are around 1.6 times the size of units on average.
There’s been demand in the market for larger properties overall (perhaps to deliver additional space for home offices etc.). That said, I suspect the shift away from small investor-only units and toward larger apartments which appeal to both tenants and owner occupiers is behind the change in relative size.
Post-purchase renovations remain popular
Around one-third of all investments receive some sort of renovation after purchase, with an average spend of $29,521 property. This indicates buyers are looking for ways to add equity and/or increase rental income.
This could slow somewhat in coming months as investors struggle with rising construction costs of course. While renovation should remain popular, the average spend could well change.
Townhouses gain popularity with investors
Townhouse have become dramatically more popular as an investment option over the past
five years. During this period, townhouses as a chosen investment type have grown by 59 per cent, while houses grew 28 per cent. At the same time, units fell as a chosen investment type by 51 per cent.
As a generalisation, townhouses tend deliver a good balance of capital growth potential and rental return. Their smaller land component and more compact design makes them more price accessible as compared to detached homes in the same location.
By the same measure, the average townhouse’s land component, size and design – as well as relative scarcity – in comparison to units delivers more potential for capital gains.
Townhouses are therefore proving popular with investors for sound financial reasons.
Another of the more telling outcomes is the swing toward cashflow-oriented investment options. This is illustrated by the rise in duplex investment.
In the last five years, while investment in units and granny flats has fallen as a proportion of all property types, the percentage of investors buying duplexes has doubled. Duplexes tend to offer high gross returns relative to houses. In addition, having a land component boosts their capital growth potential compared to units.
Unit prices have risen
While units are becoming less popular as an investment option, the average amount paid for a unit investment has grown in percentage terms by slightly more than the average paid for a house over the past five years.
This could be the result of the relative size increase for units as mentioned above. Also, after a period of oversupply in many cities, unit prices have now passed through the bottom of their cycle and are strengthening. Relative affordability could also be driving this end of the market as units offer investors a price-accessible entry to many locations.
What does this tell us about the properties people are investing in nowadays?
Well, investors are being particularly savvy about where they spend their dollars. They want capital gains, most certainly, but cashflow also appears to be increasingly important. This could well reflect people becoming more conscious of their budgeting and ability to service loans and pay for repairs and maintenance. I suspect this will only increase in influence as cost-of-living escalations and rising interest rates play their part.
Also, renovations are helping improving the potential for assets to generate maximum rental income and enjoy capital gains.