Think units are a safe entry point investment? Think again

Melbourne and regional Queensland followed suit, with multiple SA3s, especially near Melbourne CBD and the Gold Coast, seeing house values more than twice those of units.

InvestorKit said that nationwide, Melbourne and the ACT were the only capital city regions where no unit market outperformed the house market.

Arjun Paliwal, CEO and head of research at InvestorKit, said that while units have been considered a safe investment, investors should reassess their approach to portfolio building.

“While many investors view units as an affordable entry point, houses have significantly outperformed units across most regions studied,” Paliwal said.

“Over the past decade, units haven’t just lagged behind houses; they’ve consistently delivered weaker returns.”

“This gap doesn’t signal opportunity; it’s a warning sign for investors.”

According to InvestorKit, over the past decade, units have suffered from oversupply, depreciation, and high strata costs, which have impacted investors’ growth.

Paliwal said that oversupply has been the biggest drag on unit performance.

“When too many units hit the market, prices can stagnate or fall, limiting long-term growth,” he said.

Across the country, cities such as Sydney, Melbourne, Brisbane, and the Gold Coast have experienced rapid high-rise development since the mid-2010s, with the influx of new apartments suppressing both capital growth and rental returns.

Similarly, InvestorKit said that the rapid depreciation of building value has been affecting unit values more significantly than house values.

Units generally have a much smaller land value component than houses, especially in high-density new developments, meaning that most of their value, the building, depreciates over time.

In contrast, houses benefit from significant land appreciation, which drives long-term capital growth, allowing a house with 70 per cent land value to grow 74 per cent over 10 years.

“Houses benefit from larger land value components, lower oversupply risks, and superior long-term compounding returns,” Paliwal said.

Additionally, Paliwal said that high and rising strata fees have significantly eroded the cash flow of apartment investors.

Over the years, unit owners have been hit with ongoing levies for facilities and unpredictable special charges, combined with often opaque management, which reduce net returns and can undermine long-term investment performance.

“High strata fees, especially in buildings with costly facilities like pools and gyms, while may attract tenants and add lifestyle appeal, can significantly reduce net returns over time with the ongoing fees,” Paliwal said.

In its latest white paper, House vs. Unit Performance: 7 Regions with the Biggest Gap, the firm examined seven SA3 regions where houses have significantly outperformed units by comparing capital growth, rental yields, supply, and overall investment performance across Australia.

Over the past decade, Sydney has seen the most pronounced gap between house and unit performance among the capital cities.

Parramatta experienced the highest disparity, where units increased by just 2 per cent in value, while houses soared by 76 per cent.

Similarly, in Ryde–Hunters Hill, units grew by 17 per cent compared to 89 per cent for houses, and in Strathfield–Burwood–Ashfield, units rose by 15 per cent while houses climbed by 73 per cent, highlighting a clear trend of houses outperforming units across the city.

Melbourne has been mirroring the pattern, with units in the CBD declining by 4 per cent, while houses rose by 56 per cent.

In Yarra, units remained flat while houses increased 49 per cent, underscoring the stronger long-term growth of houses over apartments.

In the Sunshine State, inner Brisbane also showed a wide gap, with units increasing in value by 31 per cent compared to a 103 per cent rise for houses.

Similarly, in the ACT, South Canberra saw units growing by 29 per cent, while houses jumped by 88 per cent, reinforcing the consistent outperformance of houses over units in the region.

While the research showed houses outperforming unit markets, InvestorKit said that a large gap between house and unit performance doesn’t signal an opportunity; instead, oversupply and structural factors limit the upside.

“Not all unit markets underperform. Some buck the trend,” the firm said.

“There are regions where units have kept pace with, or even outperformed, houses, especially in locations where unit supply is tight.”

InvestorKit said that while units are ideal for owner-occupiers due to lower maintenance and lifestyle appeal, houses generally deliver stronger total returns, making them a better choice for long-term portfolio growth and wealth creation.

“The numbers clearly show houses are the stronger performer almost every time,” Paliwal said.

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