As a first home buyer, should I buy a house or an apartment?

First time home buyers

By Liz Sharpe

10-03-2020 |
When it comes to buying your first property, some of the decisions are out of your hands, thanks to the housing market, the economy and whoever decides to lend you whatever sum of money they choose. This has been particularly evident in recent years, with first home buyers seeing their dreams of securing their own patch of the vibrant inner-city lifestyle vanish in the blink of an eye. That light-filled single fronted terrace house in the heart of the action, has for many ended up being a tiny studio apartment under a train line, with walls so thin they could hear the neighbours breathing.

However, the tide has turned somewhat and things are looking up. Especially if you are ready to buy now! “With Sydney and Melbourne’s housing markets having recorded their first months of growth since the market peak in 2017, and the rate of house price falls in other capitals clearly slowing, we will see significant numbers of first home buyers finding the confidence to enter the market from January next year,” says First National Real Estate’s chief executive Ray Ellis.

The urge to buy, to some extent, comes from the improved market conditions, but it’s expected that the Federal Government’s First Home Loan Deposit Scheme will also create a surge. Ray Ellis explains, “we have record low interest rates and more cuts on the way, APRA has reduced serviceability buffers, there are substantial stamp duty concessions available, and the federal government’s 5% deposit scheme is just months away from implementation”.

So, if you do decide to enter the market now, how do you choose between a house and an apartment? As mentioned previously, your budget will dictate your choice to some extent, but there are always surprises in store for those who do the ground work. A three-bedroom house in a regional area may end up being a much better opportunity for you to invest in, than a small inner-city apartment. Similarly, a spacious apartment a little out of the city may serve your plans better, compared with committing to a huge mortgage for a house that offers more space than you need. It all comes down to budget, location and your own personal investment goals.

Having said that, the term ‘safe as houses’ did not come from thin air. Apartments may be cheaper overall, but there is something to be said for the security of investing in a house. Apartments are often considered a better entry level choice in terms of pricing, but saving on the buy-in may not necessarily bring you the return you want over the long term. Not only do you get a greater chance of owning a unique and interesting property when you buy a house, the potential for improvement allows you some wiggle room to grow your investment on your terms. An older, more established property, that could do with a little TLC, can be improved through either minor or large-scale renovations. Assuming the proper building and pest inspections have been conducted, there are also the safety considerations – an older house is less likely to surprise you with devastating issues like flammable cladding or building defects. The patient investor that can make steady, quality improvements to a house over time, will be rewarded. This approach to property investment almost always results in greater capacity for capital gains into the future.

There are inherent risks in investing in an apartment today – more so than ever before. Brisbane, Melbourne and Sydney’s skylines have all been dominated by cranes in recent years as literally thousands of apartments are built. Where this leaves the average investor, who wants to buy a quality property for long term growth, or who has an older apartment for sale, is anyone’s guess. Unless you are investing in a post war block of units, most apartments are newish, with many built for immediate market impact rather than for longevity. The sheer speed of construction is testament to that. Some apartment complexes can deliver less than 10 years of solid value to their owners, before they turn into money pits, as shoddy workmanship and hasty construction start to reveal themselves. In addition, the resale potential alone of apartments in many of Australia’s cities is a lottery at best, with so much competition to contend with.

The investment potential of the property you choose is an important part of the equation and your choice here will really be influenced by what your long-term property investment goals are. In the case of an apartment, the bulk of the growth potential may be in the building itself, rather than the small piece of land it sits on. When purchasing a house, the land itself becomes the greater part of the asset in many cases, however so much more can be done with the property that improves your capital growth options as well.

When looking for your first investment property, the key things to consider are location, affordability and ongoing costs such as maintenance, body corporate fees, and/or rates. Once these things have all been taken into consideration, you can weigh the potential to add value through renovations, are then you’re better able to decide the true investment potential of the property you choose and make the best decision for your current goals. Remember, your investment portfolio can grow beyond just this property and diversity is key to future success. A strong portfolio will ideally have a diverse mixture of houses and apartments, so you can always go the other way with your next investment.

First National Real Estate doesn’t anticipate sudden changes in property prices between now and the end of the year, but some economists are already suggesting Australia’s housing market may finish the year with prices between three to five percent higher than they were in January. “By the time buyers are certain that house prices have returned to growth, which usually takes at least three or four months, the price of an average home may have risen by twenty to thirty thousand dollars or more,” says Mr Ellis. “For those that are ready to buy now, my recommendation would be to not hold back,” says Mr Ellis.


The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions.