Pros and cons of apartment living

NICOLA FIELD
There’s a lot to love about apartment living – and no matter whether you’re after the buzz of an inner city lifestyle, taking that first step on the property ladder, or you’re looking to downsize to a low maintenance home, apartments can tick plenty of boxes.

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Already, one in ten Australians live in an – and that figure could be set to rise as freestanding houses become less affordable.

But along with the upsides, there can be drawbacks to apartment living. So, it pays to weigh up the pros and cons to be sure apartment living is right for you. Take a look at our list of pros and cons – plus other factors to consider including home loans for apartments, before deciding if an apartment suits your lifestyle.

What are the pros of living in an apartment?

Living in an apartment can bring benefits such as better affordability, less maintenance, plenty of amenities, extra security, savings on insurance and greater flexibility to afford to live in a location you prefer.

Affordability

There’s no doubt that apartments can pack plenty of punch when it comes to affordability. That can be very appealing to first home buyers or if you’re on a tight buying budget.

Figures from CoreLogic show that across Australia’s capital cities, the median apartment value in August 2021 was $617,805 – that’s $199,734 less than the median house value of $814,539 across Australia’s capital cities. A saving on the purchase price can bring extra benefits too, such as savings on upfront costs that are linked to the purchase price, like stamp duty.

Less maintenance

Spending weekends mowing lawns and cleaning out gutters (or paying someone else to do the job) can be so yesterday. Apartment living can cut maintenance costs to near-zero. Maintenance of the building, gardens and amenities is typically covered and taken care of by either the landlord or the body corporate. It means more time to enjoy life, less time weeding the driveway, and possible savings on maintenance expenses. Bear in mind that if you own your apartment you will likely need to contribute towards maintenance costs through body corporate fees.

Amenities

Gym? Tick. Pool? Tick. Apartments have come a long way in recent years, and many complexes have all the features you’d expect of a high quality resort including pools, spas, barbecue areas, and of course, well-equipped gyms. It can see you save on costs like gym membership because chances are, you’ll have one right on your own doorstep.

Security

Our home is a place where we should feel – and be – safe, and apartment living can really shine on the security front. The Australian Bureau of Statistics found 60% of apartments have security features compared to one in two houses. The quality of those security features matters too. Apartments often feature key code entry systems or intercoms that help to prevent intruders entering the building, let alone eyeing off your apartment. Plus other residents are likely to be around to notice any suspicious behaviour.

Location

Choosing an apartment rather than a house can be the key that lets you live exactly where you want to be – whether that’s right opposite the beach, in the heart of the city centre, or 20 storeys above street level basking in bird’s eye views.

Savings on insurance

As an apartment owner you’ll need to take out contents insurance to cover the value of your belongings. But building insurance is organised and paid for by the strata body (or body corporate), which will insure the entire complex, so you won’t have to pay this expense directly.

What are the cons of living in an apartment?

Cons of living in an apartment can include a smaller living space, less privacy, more noise, strata levies and reduced renovation potential.

Smaller living space

According to the latest CommSec Home Size Report, Australian homes – both houses and apartments, have increased in size in recent years. But on average, houses win for square metres.

CommSec found the average new house built in 2019/20 was 235.8 square metres, compared to 136.8 square metres for new apartments. Of course, this isn’t always a bad thing. Good things come in small packages, right? Smaller size can mean lower energy bills, less housework and savings on furniture. But there are drawbacks too.

You may have limited private outdoor areas in an apartment and less storage space, and it can be a tight squeeze if you have children or are planning a family.

Privacy

We all value privacy, and this is an area where apartment living can mean compromising. Additional facilities you may enjoy such as a pool or gym will be shared with other residents. Your outside space, like a balcony, is likely to be right alongside your neighbour’s. So if an element of communal living isn’t for you, an apartment may not be your ideal choice.

Noise

Noise can be a serious issue. It doesn’t just impact our mental health, but it can also affect concentration, which can make life harder working from home. The Australian Government reports that non-traffic-related noise complaints are rising, particularly in medium and high-density housing areas. It adds that many new medium and high density developments are unnecessarily noisy, and the sound insulation requirements for multi-unit housing and apartment buildings are not particularly high. This highlights the need to consider potential noise problems before you buy or rent an apartment. Of course, you can also have noisy neighbours if you buy a house too.

Strata levies

If you buy an apartment, expect to pay quarterly strata levies. These cover the cost of maintaining the building and shared facilities such as gardens, pool and lifts as well as paying for building insurance. As a rule, the more facilities your building has, the higher the strata levies are likely to be.

Less renovation potential

An apartment is part of a larger building, so you simply won’t have the same scope to undertake major renovations that a house offers. Even something as simple as installing downlights can be a problem as it means drilling into the ceiling, which is technically ‘common’ property shared with other owners.

You may have to let the body corporate know about any renovations that involve changes to the exterior of your apartment, or if the work could impact other residents through noise or tradies parking in common areas.

Long story short, if you’re planning on picking up a bargain apartment and adding a personal touch, or adding value through major renovations, you could have less freedom around the improvements than you realise.

What are the home loan options for buying an apartment?

In terms of the home loan process, financing an apartment is typically much the same as securing a loan for a house. The main issues a lender will look at are how much you earn, the size of your deposit and the value of the property.

However, if you’re looking for a home loan to buy an apartment there are two potential traps to avoid. The first is that lenders may shy away from certain postcodes, where there is a significant oversupply of apartments. Banks don’t make these postcodes public, so it can be worth talking to a mortgage broker or local property expert to get a feel for whether the neighbourhood you’re looking at could be no-go zones for lenders.

The other pitfall is that some lenders won’t provide finance for very small units, often sized below 40 square metres, such as studios. All is not lost though. There are lenders happy to provide a home loan for a studio. It’s all about researching different lenders to find the lender and loan that’s right for you.

If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.

Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning.

Are apartments a good investment?

Whether you’re buying an apartment as a home owner or an investor, the property is going to be one of the biggest purchases you make, and it makes sense that your apartment is a good long-term investment.

While there are no guarantees for the future, residential property in Australia has a track record for delivering healthy capital growth over time. But it’s always been a tussle between houses and apartments as to which takes the gong for the highest returns. After all, plenty of us are looking for the lower maintenance lifestyle of apartments, but houses come with land, which tends to rise in value, whereas buildings tend to decline in value over time.

So, let’s look at the numbers to see how apartments have fared against houses in the capital growth stakes.

Given the high entry costs (including stamp and legal fees), property is generally regarded as a long-term investment. For a very long-range view, the Aussie/CoreLogic 25 years of Housing Trends report reveals how the Australian residential property market fared from 1993 to 2018. It found that median house and unit values nationally increased by 412% and 316% respectively. The 25-year capital gain worked out to an annual growth rate of 6.8% for houses and 5.9% for units – both strong results, though houses do have a clear lead.

According to CoreLogic, the gap in gains between houses and apartments has widened during the COVID-19 pandemic. As a guide, for the 12 months ended July 2021, houses across the state capitals recorded value growth of 17.9% compared to 7.3% for units. CoreLogic says the result for units reflects lower immigration, fewer overseas students arriving to study in Australia, and a general preference for lower density living in the midst of a pandemic.

However, research by the Reserve Bank of Australia has found that Australian cities face a shortage of apartments. And as life gradually returns to normal, chances are that all the factors that make apartment living so appealing, including affordability and convenience, will once again drive demand for units. This may help to close the growth gap in values between apartments and houses over time.

This is an updated version of an article originally written by James Hurwood.

Cover image source: jamesteohart/Shutterstock.com.


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