Unit Boom Coming: Does the Data Agree? - With Arjun Paliwal

Have you heard people talking about the massive price disparity when it comes to houses and units? Some people are saying that it's the next big opportunity. But what does the data say? That's key. In this episode, we're going to unpack price growth gaps between houses and units, long-term growth of units versus houses, and three locations you could buy houses for similar price to units.

And look, if by the end of this you're still set on units, I'm actually going to give you three high-pressure unit locations to make sure you get gold out of this episode no matter which way you go. I'm Arjun Paliwal, CEO of InvestorKit, and let's get into it. All right, so the first place to start is unit long-term price growth versus house price growth over the long term. And so what I've done is I've looked at the eight capital cities just to give you a good mix of the country because we've got viewers and listeners from all over Australia. So let's get into it.

Now, we've taken 2004 to 2024. And the reason why that's important to take is, you know, some data providers or some commentators will go, oh, look at this five-year stat, look at this 10-year stat, and you end up molding data to like what you want to look at. Well, I say, why not go 20 years? Just have this whole long term so we can let the data do the talking and not me trying to mold anything. And it's quite interesting.

If we're looking at the data here, firstly, let's go to the ACT unit market. And I'll start with the unit markets first. ACT has seen the unit median price at $591,000. Over 10 years, it's grown just over 30%. And over 20 years, we've seen unit prices grow over 65%.

Let's go to ACT house prices now with the median price at $955,000. And check this out. 10-year change, 76. 52%. So more than double units, 10-year change.

And 20-year change, 169. 01%. More than 2. 5 times the unit growth over 20 years. So we're not talking small timeframe intervals.

We're talking over 10, over 20. ACT units have just not done as well as ACT houses. And the trend is much the same. We'll go over to Adelaide. 70% increase in units, 10 years.

1. 29% increase in unit prices. House prices, 92. 68% over 10 years. And house prices, 210.

41% over 20 years. So sorry, unit buyers, 20 years. That's like more than double again for Adelaide house and unit prices. So both in ACT and Adelaide, we're tracking it more than double the growth for houses than units. Then let's go to Brisbane.

67 for units for 10 years. 136, not bad, for units over 20 years. But now houses, 87 for 10 years and 190 for 20. So that's Brisbane. I'll give you one more example.

But if you're on the podcast and you're wanting to get all of those eight capital cities, jump onto the YouTube page. That's InvestorKit. You can like and subscribe, watch this video, and the chart will pop up in the video there. So you'll be able to see all the eight cities and their variances. But just to give you one more example, we'll jump straight into Melbourne because this one's a shocker.

Melbourne, 10-year price growth for units, 1. 93%. So literally no money. You know, sales agent fees will make you into the negative immediately. Lawyers, pest and building, any buyer's agent fees you pay to purchase it.

And capital gains tax, well, that's not even a thing. You're getting capital gains, you know, refunds on tax right there, right? You're getting debts go against your name to say you've made losses. So the key there is 1. 93 over 10%.

What a shocker. Houses, pretty average as well, 57. 41% for houses over 10 years. Now let's go to units in terms of 20 years, 48. 72%.

And then houses, 174. 19%. What a monster disparity. Almost four times the growth rate of units, right? So when you're looking at this chart, the other thing you'll notice though is that all cities perform when it comes to houses over the long term.

And surprisingly, the cities with all the action, all the life being Melbourne, haven't done anywhere as good unit-wise over 20 years in comparison to the best amongst the patch, which is Brisbane followed by Perth. And then for the houses, you'd think that, hey, what about my Sydney and Melbourne houses? Shouldn't they be the best? Well, even looking at this data, you'll see that the other cities, Hobart, has outperformed, but it's Adelaide, the 20-year best performing house market in Australia as per our data. And so that's Adelaide becoming the best performer for the capital cities.

Now, there is one exception though, which is Darwin. And Darwin has produced 22. 3% growth on the 10-year unit price, but then houses have only grown 5. 5%. So that's the only exception to the rule where the unit prices have outperformed house prices in a city.

But again, that's only over the 10-year period because houses over the 20-year period in Darwin have done 144%, whilst units have done 106%. So the key there to see is that overall, in pretty much every capital city, par Darwin on the 10-year result, houses beat units over 10 years and over 20 years, and not by a small margin. We're talking two times and even up to four times the value over 20 years in that growth rate. So the next time you're looking at something with all the cool lift, swimming pool, cafe on ground floor, the amenities, even if it's a property to live in, like a unit, I want you to think of that at times like an investment as well. And the reason why is two things occur when people buy units to move into.

A, they become the accidental investor, which is where they bought a unit to live in, then they move out, they keep it as an investment property, and they go on to invest with other properties down the track. And now you've got this thing holding you down as an investment, both from lending capacity and second from opportunity cost and capital growth. So that's a killer. And in today's interest rates, it's also weak cash flow, right? So that's also bad.

So from that perspective, you've had something holding you back for a fair time. The second thing is when you're buying a home to live in, many underestimate the impact it can have. If you get great growth, it's going to equal capital gains tax-free growth over the long term, pending you meet all the requirements. Secondly, it's going to allow you to downsize the asset to pay off debts on investments that you've had through your life and now want to clear so you can collect a passive income. And then the third thing is that when you're taking out equity as it grows through the journey, you can make more of that debt tax deductible because you pulled that equity to use it for investment purposes, and then you're able to buy more properties.

So you can see the importance of not just getting this right as an investment, but even as a place to live in, units would have set you back over two decades. Now, if you're one of those investors that go, but Arjun, there's a couple of units here that are great in the eastern suburbs of Sydney. Look at this growth rate. Well, look at it in comparison to houses in the eastern suburbs of Sydney. It's not as good.

Oh, but Arjun, that's for over a million dollars in the eastern suburbs of Sydney. That's still cheap, and the houses are 10 million. What do I do then? Well, you think that's the only place in the country to invest a million bucks? A million dollars across houses and other markets would have outperformed that unit in the eastern suburbs of Sydney.

So it's really silly when you look at it in isolated examples of just like you can only live, walk, move, invest, throw money around in the east of Sydney. So more of Australia exists if you didn't know. That's the key thing. But the main thing to highlight here is your long-term trends are against you, right? Whereas in houses, when you compare them to each other, houses over the long term have all moved up.

And that's one of the key things you would have noticed in the previous chart. All house markets over the 20 years, the lowest performing one was 169% at ACT and the highest being 210% in Adelaide. So that just shows you that all house markets have done well. They vary between each other, and they're in this bandwidth of high performance anyway. So you're just moving from high to higher performance.

So that's why you can use weaker periods of growth to go into certain markets and see that upside because they all return to some pretty strong long-term averages, not the case for units. So that's the first reason why you should make sure that units aren't in your picture simply because of the great long-term differences. And no matter how you cut the data, 5, 10, 15, 20 plus years, it ain't as pretty. So that's the key thing to remember when it comes to units. Just because the price gap's there, it's there, yes, but long-term data, you have to work against 20 years of trends for this thing to turn around.

And that's the thing I'm trying to help people avoid is that even if, say, let's just say I'm wrong and growth occurs in units and the catch-up of that trend occurs, now that it's caught up, you're still caught up Take that for opportunity cost. The next thing here is Mackay has a days on market of 14 days, which has decreased by over 41. 7%. So it's much faster to sell a property, which means there's much more growth occurring. Inventory is scary low, 1.

48 months, which means hypothetically, if there was only 15 listings available for sale, and say there was 10 sales a month occurring, in about one and a half months, all listings would be sold, right? That's super tight. No properties in the city, very low supply in comparison to demand. Now, the inventory is not just tight, but it's actually dropped 45% over the last 12 months, with vendor discounting dropping 11%, and vacancy rates super low at 0. 42, and yields 6.

26, crazy yields. But in summary, if you're like, whoa, whoa, whoa, Arjun, lots of numbers for me, can you explain that in English? Here's what it is. It's an affordable market that is rising quickly in price. It's selling really quickly.

There's no discounts happening. There's hardly any supply for sale in comparison to what's being purchased. There's very low amount of rental properties available, and you can get a high rental income for the price you pay. Like, that's my subversion for a 650K and below area, and that's showing you that you would have outperformed many of the units, and not only that, you would have outperformed some units' 10-year growth rates in one year alone. And these areas aren't just like one-year growth and they stop.

These areas have been producing some of these numbers for the last three years, and they're expected to, with current pressure conditions, to still put these numbers ahead. So the key is market pressure, affordable price, houses will always beat units, not only in the short term, because as you saw with the eight states or eight cities before, long term too. The house was the key. Moving to the second market, this one is absolutely crushing it, the best amongst the list, and that's the market of Bunbury. So Bunbury has a median price of $560,000.

We're off to WA here, and price growth has been the highest across these three markets at 24. 4%. That's mental, right? 24. 4%.

Where's everyone who's been saying WA's growth rates have been slowing down and coming down? That's up 24% in the last 12 months. You know, Australia's done little to nothing on the macro level of growth, which means that you're outperforming the market by more than four times on the national level. Unreal. Days on market down 33% at 14.

Inventory very low, 1. 55 months with 26% decline in inventory. Vendor discounting the lowest amongst the three markets I'm sharing here at 3. 85% positive, which means they're selling it for more than listing price, and vendor discounting is coming down. Vacancy rates the lowest as well at 0.

35%, and strong yields for a city that's commutable to a capital, 5. 64% yields. That's unreal. So that just shows you again, if you had units, sorry to pick on Melbourne again, but this house market here is now more than around six times the price growth of a unit in 10 years in Melbourne. Huge.

The third one, I won't go through all the data points, but this is Murray Bridge in the surrounding areas of South Australia. And so before I go into that, can you see something? I've just shown you not only three house markets, but three major regional centers. And with these three major areas, some of them are commutable to capital being Bunbury and Murray Bridge. And lastly, across three states.

So could you imagine like the perfect portfolio construct? I'll use both examples rather than three affordable units or rather than that one blue chip unit in the Eastern suburbs for a million and a half. You've bought these three properties, had well over 20% growth on average across the three with some being over 20 and some being just under. You're having rental yields that are almost two times as high when you consider unit costs as well. And if not, because of the rates and insurance bills, let's just say they're much higher than the units.

And you've diversified across three states and saved on tax money in the future. And you've got three different rental income streams. Like, come on, just tell me in which world does any unit beat that? It doesn't, right? And this is the key to successful property investing.

A diverse portfolio in high growth using data to get ahead and something where it's a house where the long-term trends are in your favor and you're able to also have high yields whilst you're at it. Like that is a property investor's dream. This is something that you really need to get serious on, which is the comfort of going and thinking broad when it comes to property investing. Both from the location and the diversity, second from what your money can actually do for you when you have the right team around you. And then third, just actually realizing that all the misconceptions, all the thoughts you've heard about certain markets aren't what they actually are.

You know, there are cities across the country with massive growth potential. And if you thought, well, hey Arjun, Bunbury had a up and down before or Murray Bridge was quite quiet before. Well, zoom out on the 20 years for all three of these cities and they're not like those unit pictures. They're like the house pictures of our greater eight capital cities. So that just shows you they all go through ups and downs, but even over the time tested of 20 years, these markets houses have done well.

So that's the second point to show you that, hey, maybe the first point was long-term trends, right? It's like, okay, showing me the difference that makes sense. Units are an underperformer. And even if it catches up, we're just catching up for short term and we're likely to still underperform over the long term. The second point here is that there are markets where you can not think unit, use the same affordable budget, go across the country and make successful purchases.

And then the third part now is going, hey, Arjun, sorry, don't care what you say. I don't care what I've heard for the last 10 minutes. I'm just going to go and purchase a unit anyway. Well, I still got something for you. I'm going to help you with sharing multiple areas here that have high growth and have high pressure, even though I think you shouldn't do it.

I'm just telling you now, but you're like, no, I want to buy a unit because so-and-so said so, or I believe that's the case. Or maybe I'm living in one of these areas and I want to get a unit with the pressures high and growth is going to be high. Here's some areas here to go through with you. The first one is we're in WA. And by the way, I'm going diverse here as well in this chart, just so you can get different areas.

I'm giving love to different parts of Australia, right? The first one here is the SA3 region or the cluster of suburbs surrounding this area of Joondalup, where median prices for that region are 650,000. And apologies to my fellow WA folks. I think I've got to have it now of stuffing up WA. I got blasted in the comments for saying cock burn in another episode.

So I've learned my lesson, but maybe I haven't because maybe Joondalup is not how you say it and it's something else. Please let me know. Jump in the comments, fire away, and let me know if I got that one right. But 650,000 price here, up 39% in unit prices. Woo, massive.

Like that's huge. Shout out to Ric Flair for that woo, by the way. And eight days on market, so it's selling 88% quicker than the last 12 months, ridiculously hot. Inventory levels, finally, a unit market that's tight, 3. 1 months of inventory, so that's well balanced.

Vendor discounting is coming down, down 16%. Vacancy rate, super tight at 0. 4%, and rental yields decent at 5. 1%. So WA folks and Joondalup, you're going to get killer unit growth as being seen already for the last 12 months.

And if all the pressure stats weren't strong or strengthening, then I'd say that growth is fizzling out. But even after strong growth, it still appears like it's still going to be strong for at least the next 12 months until trends change. The second market, we're traveling over to Queensland, and we're giving some more love to another city now. We're in the city of Brisbane, and there's a region called the Nunda SA3. And if you're unfamiliar with these regions, you're going, Arjun, I don't know how to search up these regions.

Just use that in Google, N-U-N-D-A-H, Nunda, or any SA3 I mentioned, and just write the word SA3. And you'll get a map that'll take you from the census page, and there's usually a page in census that says like SA3 Explorer or Location Explorer, and that's when I'll show you the geographic actual visual of that SA3 so you know all the suburbs within that. Okay, so just go SA3 Nunda map or SA3 Nunda Explorer. Type that into Google and you should be good. Now you've got a price change of 26% here.

Days on market, super low at 9. 5. Now, just to bring this into context, like 9. 5, eight days, eight days for these three regions, that is lower than the houses that I'd mentioned in the other area. So that is showing like extreme pressure.