Deterred from buying individual houses and apartments by CGT, negative gearing and SMSF changes — and wary of the barriers to commercial, investors are turning to unit blocks, a hybrid asset offering the best of both worlds.
Some residential investors who traditionally bought houses or individual apartments are now targeting a new type of asset: whole apartment blocks.
With CGT and negative gearing changes making residential property investing less appealing, plus a ban on new SMSF residential borrowing, investors are diverting into unit blocks — chasing near-historic low vacancies and rising rents through fully leased assets offering immediate, diversified cash flow and often long-term capital growth.
Apartment blocks can be easier for high net worth investors to understand as an asset class. Picture: Cushman and Wakefield
CBRE’s latest Residential Valuer Survey found investor activity has fallen to its lowest level since the survey began.
“The federal government’s budget changes have made it harder to invest in existing residential, but there’s still plenty of demand,” said Will Carman at CBRE Brisbane. “Commercial still has quite a barrier to entry for some, and construction continues to get more expensive.”
Cushman & Wakefield is seeing more private investors chasing entire buildings in tightly held metro locations supported by major employment, education and transport.
Henry Robertson, the firm’s Investment Sales NSW Executive, said buyers like the diversified income, 100% property ownership and long-term capital growth prospects.
“Buyers are increasingly looking beyond the value of individual apartments and considering the resilience of the building as an income-producing investment.”
Low-set brick apartment blocks are very popular investments, such as this one in Noble Park in Melbourne’s north. Picture: realcommercial.com.au
Why hold and sell as a block?
Owners keep a unit block under one title for various reasons. It means one set of council and water rates. Plus strata-ing can be tricky and expensive, especially for older, stair-access-only blocks that can’t meet modern fire and disability rules.
Where strata isn’t viable, land value and development upside become the drawcard.
But even if a unit block is strata-titled, selling it in one line is simpler and faster than dealing with multiple separate transactions.
Older apartment blocks with maintenance or repairs needed can be difficult to strata. Picture: realcommercial.com.au
Unit block buyers vary: some are passive investors happy to set and forget; others plan to strata, renovate and sell off individual units; others buy run-down blocks to flip whole, while some attract developers who demolish and rebuild bigger.
Here are some unit blocks snapped up this month, and some up for sale.
Huge Melbourne portfolio sale
It’s not often a portfolio this size comes to market. This month Stonebridge Property Group sold 15 Melbourne blocks for $56.12m — including an 11-block portfolio, held by one owner, that sold for over $39m to seven buyers.
The 136-apartment portfolio spanned Ascot Vale, Brunswick, Brunswick East, Brunswick West and Noble Park, with the vendor inviting bids both as one line and block-by-block. The largest single sale, 39 Kent Street, Ascot Vale, a 24-unit block, fetched over $7m.
Earlier in September a huge portfolio of apartment blocks, including this one in Ascot Vale, sold in Melbourne. Picture: realcommercial.com.au
All 15 sold before reaching the open market — a sign, Stonebridge says, of how thin supply has become, driven by interstate buyers priced out of Sydney and Brisbane and drawn to Melbourne’s relative value.
With many blocks going for $3m–$4m, Chao Zhang at Stonebridge called that an “entry-level price point” for interstate investors.
“It’s a new trend — interstate buyers coming in as a syndicate, then selling down individually,” he said.
Brisbane block with income and development upside
With a gross annual income of $454,532, a 1,153sqm holding in Brisbane’s tightly held West End, and development potential up to four storeys under the council’s new ‘More Homes, Sooner’ reforms, it’s no wonder 85 Ryan Street, West End attracted 125 enquiries.
Apartment blocks have huge income potential, like this one in West End, Brisbane. Picture: CBRE
It sold on one title this month for $7.1m.
Mr Carman at CBRE said the sale drew both private investors and developers.
“Land value is getting to a point where it makes more sense than the block sitting on it, plus you get really good income on the way through. There’s a general consensus that rents will keep pushing, with less supply coming through.”
Rare four-block portfolio in Brisbane’s inner north
A portfolio of four inner-north Brisbane blocks — 31 apartments across Nundah, Wooloowin and Newmarket generating $880,000 in gross annual income — is being offered individually, in combination or as one line.
They include the five-apartment complex at 49 Farm Street, Newmarket and six strata-titled units next door at 49a Farm Street.
Experts say apartment blocks can be suitable alternatives to the typical commercial asset classes. Picture: realcommercial.com.au
Andrew Burke at Ray White Commercial called securing four standalone properties in one transaction was almost unheard of in such a fragmented market.
Unit blocks can trump commercial, he added.
“They get better capital growth than a retail investment leased to BWS or KFC. The people who’ve done well look past the tight opening yield — your yield in year two onwards is completely different.”
Near-new Sydney complex wanting $42m
For around $42m, investors can score a near-new complex of 57 tenanted apartments at 10-14 Smallwood Avenue, Homebush, returning a whopping $2.05m in gross annual rent.
Andrew Bova at Exclusive Real Estate Concord said blocks this size selling in one line rarely come up — and it’s already built to strata when required.
He said larger blocks were popular with build-to-rent funds and high-net-worth individuals.
“They may not have the skill set to build, or don’t have the interest, but want a sizeable long-term investment.”
Rising land tax is also pushing buyers toward bigger blocks of 10 to 15 units since the cost is spread across more apartments, he added.
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Gold Coast block seeking developers
A four-unit complex plus a separate-title duplex at 23-25 Alexandra Avenue, Broadbeach is just 250m from the sand and listed for $14m.
It’s a different type of buyer snapping up old unit blocks on the glitter strip — typically developers keen to build modern high-rises or land bank until more sites come to market.
The Gold Coast is in a perpetual state of making way for new high rises. Picture: realcommercial.com.au
“Land is scarce so developers are forced to buy existing properties,” said Nicky Cunningham at Kollosche Qld. “There is an appetite for them, but there isn’t that many actually available.”
The site’s High Density Residential zoning and unrestricted-height designation leave the door open for apartments, mixed-use or visitor accommodation.
Rare 15-unit block in central Melbourne
Developers aren’t the market for this solid brick block of 15 units on 1,199sqm at 1-15/48-50 Alexandra Street, St Kilda East — which just listed for $6.5m.
Blocks of apartments aren’t always a pureplay redevelopment opportunity. Picture: realcommercial.com.au
Daniel Micmacher at Gary Peer and Associates said a block this size is rare, and demolishing to redevelop doesn’t stack up given costs.
“I could find you a clear block of land and we’d make two terrible houses on it for a lot less than that.”
Interest is instead coming from buyers looking to refurbish and sell down individually, and investors happy to hold.