Houses Still Driving Capital Growth in Sydney

With some reports that growth in unit prices around the country has been outstripping that of house prices recently, it's interesting to look at how units have been performing against houses in Sydney in the past quarter or two and over the longer term.

First, we're talking only about capital growth. The total return of a property includes both capital return and rental return (even if it's an implied rental return for an owner-occupier).

In the long term, if the capital return of units was lower than that of houses, we should expect the rental return to be higher in order to give a roughly equivalent total return between the two property types.

For Sydney, throughout nearly all time periods we look at, the capital growth of houses has exceeded that of units. In 2009, the median house price rose by 12.1 per cent, while the median unit price rose 9.8 per cent.

In the past five years, a period of stagnant prices overall for Sydney, units actually win out, growing by an average of 1.8 per cent per year compared with 1.5 per cent a year for houses.

But since 1999, the average annual rise in Sydney house prices has been
6.5 per cent, compared with 5.2 per cent for units. Preliminary data for the three months to February shows that nothing has changed in early 2010.

Of course, gross rental yields are higher for units, by close to 0.75 per cent across Sydney and more in certain regions, which closes the return gap somewhat.

As long as rental yields for units remain above those for houses, it's hard to see units outperforming houses in capital growth terms for any significant length of time.

Latest NewsHouses Still Driving Capital Growth in SydneyTuesday, 03 January 2017

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