Australia has long been a top destination for property investors from around the world thanks to its robust economy, rising property values, and strong rental yields. When deciding where to put their money, investors have some good options to choose from among the different property types available. But what are the most popular investment properties purchased by investors in the Australian market? Here’s an overview of the top asset classes that investors target and what makes them appealing additions to an investment portfolio.
1. Single-Family Houses and Townhouses
Single-family detached houses continue to rank as the most popular property type purchased by residential property investors in Australia. According to the Australian Bureau of Statistics (ABS), over 67% of residential investment properties are free-standing homes. Townhouses and villa units also rank highly as sought-after property assets, together making up an additional 15.5% of investor-owned dwellings. There are good reasons why these property types are perennial favorites:
- High rental demand: There is strong competition among tenants for these property types, ensuring high occupancy rates and fewer periods of vacancy. These properties tend to attract good-quality long-term tenants, including families and professional couples.
- Capital growth potential: As the Australian population continues to grow, increased demand from both homeowners and tenants has made houses and townhouses more scarce and valuable, especially in major cities. Investors can benefit from above-average capital gains over time in addition to rental income.
- Diversification: Unlike higher-density unit developments which might depend on local economic conditions, detached houses and townhouses provide risk diversification through location independence. An economic downturn affecting inner-city unit prices might not impact outer suburban markets to the same degree.
Investing in a renovator with redevelopment potential can further boost capital growth for savvy investors with builder connections or DIY skills. However, buying older houses does require budgeting for maintenance costs. On the whole, low-rise, freestanding homes make excellent additions to well-balanced property investment portfolios.
2. Units and Apartments
Units and apartments are the second most commonly purchased property assets among investors at around 26.5% of investor-owned dwellings. And it’s easy to see why. Australia’s capital cities have seen an apartment boom over the last decade or more in response to rapid population growth and increasing demand for affordable, low-maintenance accommodation with easy access to urban amenities. Dense unit developments are especially prevalent in Melbourne, Sydney, Brisbane, and Perth CBDs.
Although risk management is crucial when buying off the plan apartments which may sit vacant due to oversupply issues, units in well-located, established complexes can offer good returns. Key advantages of units and apartments for investors include:
- Affordability: Units tend to be more affordable than houses in popular inner-city neighborhoods, with lower purchase costs and body corporate fees factored into gross rental yields. This gives investors access to areas known to attract high tenant demand.
- Less maintenance: The body corporate handles external property maintenance for units and apartments. Investors benefit from lower costs and duties associated with home ownership and asset protection.
- Strong yields: Modern unit developments with great facilities in popular inner suburbs routinely achieve rental yields around the 5% mark, making them particularly attractive to yield-focused investors.
While houses might beat units over the very long term, the superior rental returns delivered by apartments make them worthy contenders for inclusion in balanced property investment strategies designed to deliver cash flow and equity growth.
3. Retail Spaces
Commercial property and specifically, retail premises have emerged as a growing segment of interest for investors seeking alternatives to the residential market. As Australia’s population grows and consumer spending rebounds post-pandemic, demand for well-located retail premises is rising across the major capitals.
Whether buying a whole building or strata suite, retail investments include shops, restaurants, cafes, car wash facilities, liquor stores, hair salons, fitness studios, child care centers, and more.
Compared to buying residential real estate, retail property appeals to investors for several reasons:
- Higher yields: Net rental yields around 6-8% are achievable for retail spaces in good areas, significantly higher than achievable rents for comparable residential properties.
- Long leases: Commercial leases tend to range from at least 3-5 years up to 10+ years, which generates consistent cash flow for landlords and reduces turnover costs.
- Strong tenant demand: In the right area, quality retail premises will seldom sit vacant for long. Savvy investors target densely populated growth markets with characteristics like high foot traffic, worker density, and access to transport links.
While retail isn’t immune from disruptions, securing a solid, long-term tenant by liaising with marketing-savvy agents is one-way investors can protect their assets.
4. Student Accommodation
With Australia’s education export industry valued at $37.6 billion in 2021 and over 800,000 international students typically flocking to local shores per year, purpose-built student accommodation (PBSA) has cemented itself as a wise investment vehicle. Even during COVID mobility restrictions and border closures, local students helped keep tenancy rates buoyant in well-run facilities located near desirable institutions.
Student housing investments offer strong upside potential for investors including:
- High yields: Competition for rooms in quality housing complexes near universities and colleges allows landlords to charge premium rents. Investors can achieve gross rental yields between 6 – 10%.
- Low vacancy: Historical vacancy rates are impressively low at just 5%, ensuring reliable cash flow. Most facilities now offer 52-week yearly stays with rolling contracts instead of shorter semester programs.
- Diversification: The resilient nature of student housing across market cycles makes it useful for diversifying investment portfolios too heavily weighted towards traditional, single-family housing assets.
With Australia’s international education industry roaring back to life post-pandemic, demand for PBSA facilities in cities like Sydney, Melbourne, and Brisbane seems sure to keep rising over the next decade.
5. Healthcare Real Estate
The healthcare sector emerged as the economy’s darling in recent years faced with a rapidly aging population and increased government spending on new infrastructure, facilities, and services. Investors are now capitalizing on growing demand trends by snapping up purpose-built healthcare assets countrywide.
Whether buying and converting an existing building or developing a new center, shrewd investors can target one or more areas of healthcare real estate spanning:
- Aged care homes
- Hospitals
- Medical centers – think GP clinics, dental surgeries, imaging centers, dialysis clinics, physio practices and more
- Specialist centers – e.g. skin clinics, women’s health centers
- Veterinary practices
- Pharmacies
Healthcare real estate offers investors some strong benefits such as:
- Recession resilience – people still require healthcare services even during downturns
- Long leases – e.g. hospital rents are often set for 20 years +
- High occupancy – due to growing demand and limited supply of facilities
With the government planning to invest over $17 billion by 2025 to support healthcare infrastructure growth across cities and regional areas, medical real estate shaped for specialist services offers a smart way to expand property investment portfolios.
Final Takeaways on Australia’s Top Property Investments
While many other niche property sectors like hotels, resorts, caravan parks, and industrial complexes also attract buyer interest, investors overwhelmingly still prefer residential real estate in the form of houses, units, and apartments. Population pressures across Australian capital cities near the best jobs, amenities, and lifestyle perks indicate dwelling undersupply won’t abate any time soon. And with more people needing roofs over their heads, residential rental demand seems assured.
However, new hotspots like commercial retail spaces plus purpose-built healthcare facilities and student accommodation now starting to shine brighter on investors’ radars too due to their inflation-resistant, recession-resilient characteristics. This makes them appealing ways to balance overall portfolio risk while still delivering attractive yields.
No property type offers perfect guarantees or immunity from market shifts. Yet by understanding Australia’s property landscape and targeting the most popular assets located in high-growth areas, investors can build wealth through strategic mixed-market diversification while also helping provide much-needed housing.
FAQ:
What are the 5 most commonly purchased investment properties in Australia?
The 5 most popular investment properties in Australia are:
- Single-family houses and townhouses
- Units and apartments
- Retail spaces (commercial properties)
- Student accommodation
- Healthcare real estate like medical centres
Why do houses and townhouses make good investment properties?
Houses and townhouses have wide tenant appeal so enjoy low vacancy rates, making them reliable income generators. As population growth continues, they benefit from scarcity value to deliver solid capital growth over decades too. Plus they provide diversification benefits that dense unit blocks can lack.
Should investors buy off-plan apartments?
While temptingly affordable at pre-construction phases, off-plan apartments carry higher risks until the development is completed. Without a track record of rental demand or concrete valuations, new high-rise projects may result in negative cash flow and flat prices if oversupply issues or defect disputes emerge.
What yields can be achieved on healthcare real estate investments?
Quality healthcare properties like medical centers, specialist clinics, and aged care homes often achieve gross rental yields between 6% - 8% thanks to specialist fit-outs and long commercial leases of 10+ years. Yields go even higher for facilities securing government operational funding contracts.
Why is student accommodation increasingly popular with property investors?
PBSA facility's rental income stays strong thanks to endless waves of student demand, especially from Asia and in giant campus cities like Melbourne and Sydney where housing undersupply persists. Even through COVID, overall vacancy rates as low as 5% indicate resilient cash flow.
