One of the most common decisions for first-time property investors is whether to buy a house or a unit (apartment or townhouse). Both can be viable investments — but they have meaningfully different risk profiles, yield characteristics, and capital growth drivers. The right choice depends on your budget, target market, and investment strategy.
Key Differences at a Glance
| Feature | House | Unit / Apartment |
|---|---|---|
| Land component | High (land appreciates) | Low (strata share) |
| Capital growth (historical trend) | Generally stronger long-term | Can be lower, particularly high-rise |
| Rental yield | Lower (2–4% in most capital cities) | Higher (3–5%+ in many markets) |
| Entry price | Higher | Lower (lower barrier to entry) |
| Strata/body corporate fees | None (freehold) | Ongoing strata levies |
| Depreciation deductions | Building depreciation only | Higher depreciation (more fixtures/fittings) |
| Tenant demand | Families, longer-tenancy tenants | Young professionals, couples |
| Vacancy risk | Generally lower | Can be higher in oversupplied areas |
| Council approval for renovations | Simpler | Subject to strata bylaws |
The Land Component Debate
The most frequently cited advantage of houses over units is the land component. Land is finite — particularly in desirable locations — and generally appreciates over time. A house on a 500m² block in inner Melbourne or Sydney contains a land asset that can appreciate independently of the dwelling.
A unit in a high-rise tower shares land with tens or hundreds of other owners — the individual land content per unit is minimal. This is why many investors and property analysts argue that houses outperform units for capital growth over the long term, particularly in markets with strong population growth and land supply constraints.
However, this is not universal:
- Well-located boutique apartment blocks (small number of units on a good-sized land parcel) can deliver strong capital growth
- Oversupplied unit markets (e.g., inner-city high-rise corridors in Brisbane, Melbourne, Sydney) have underperformed
- Houses in remote or low-demand areas can also underperform
Depreciation — Units Win
For tax purposes, units typically offer higher depreciation deductions than houses:
- Units often have newer construction with more fixtures, fittings, carpets, dishwashers, air conditioning — all depreciable under Division 40 (plant and equipment)
- High-rise apartment buildings offer substantial Division 43 (building allowance) deductions
- Newer properties (built after 1985) provide the most depreciation benefit
For investors in higher tax brackets, depreciation deductions on a well-chosen unit can meaningfully improve after-tax cash flow. A quantity surveyor’s depreciation schedule is essential to maximise this benefit.
Strata Levies — An Ongoing Unit Cost
Units in strata-title developments (including most townhouses and apartments) are subject to strata levies (also called body corporate fees in some states). These are typically:
- Administration fund (quarterly maintenance costs): $1,000–$5,000+/year
- Capital works / sinking fund (major repairs, building maintenance): $500–$3,000+/year
- Special levies (for unexpected major expenses)
These costs are deductible but reduce the property’s net yield and must be factored into purchase analysis.
Vacancy Risk by Property Type
Units face higher vacancy risk in markets with significant supply (new apartment developments). In inner-city markets with thousands of new apartments completing simultaneously, vacancy rates can rise and rental growth stalls. Houses in established suburban markets tend to have lower vacancy — fewer alternatives for tenants seeking a house with a yard.
Which Should You Buy?
There is no universal answer. Consider:
- Budget: If houses in target suburbs are out of reach, a well-selected unit may be a better option than a house in a fundamentally weaker location
- Strategy: Capital growth focus → prioritise land content and location. Cash flow focus → higher-yielding units may deliver better cash flow
- Market research: Research the specific suburb’s supply pipeline — a suburb with 2,000 new apartments completing in the next 2 years faces different supply dynamics than one with no new supply
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Frequently Asked Questions
Do houses always outperform units for capital growth in Australia? No — not always. Well-located boutique units can outperform poorly located houses. However, the long-run historical evidence across most capital cities suggests that houses with meaningful land content have delivered stronger capital growth than high-density units. Location quality is the dominant variable in both cases.
Are units good investments in Australia? Units can be good investments when: purchased at the right price in a market with limited new supply; in inner-ring locations with strong tenant demand; with good depreciation schedules. High-rise units in oversupplied inner-city corridors have historically been poor investments.
Should I buy an old or new property for investment? New properties offer higher depreciation deductions and lower maintenance costs initially. Established properties may offer better value in well-located suburbs where new supply is limited. Each has pros and cons — the specific property, location, and price paid matter most.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.