Blue chip bargains: The cheaper way to buy into premium suburbs

Suburbs with multimillion-dollar median house prices aren’t necessarily off-limits to buyers with smaller budgets.

Analysis of PropTrack data shows that even in some of the priciest suburbs in the nation, more affordable properties sell on the regular.

In these suburbs, buyers can save millions of dollars, providing they’re willing to make a major trade-off.

Many of Australia’s priciest suburbs have median unit prices that are a fraction of the cost of a typical house, representing a big saving for buyers who want to live in a premium postcode but don’t need a huge home on a big block of land.

The data examines the suburbs with the highest median house prices across Australia that still have median unit prices under $1 million.

It shows that there are dozens of suburbs where typical houses sell for multimillion-dollar figures, but units typically trade at a much lower price point.

Suburbs where units are millions of dollars cheaper than houses

The list includes suburbs where buying a typical house will cost in excess of $4 million, including Toorak in Melbourne, Strathfield and Greenwich in Sydney and Surfers Paradise in Queensland.

However, a typical apartment in these suburbs will cost less than a fifth of that figure, representing a big discount for buyers.

Opting for an apartment over a house in these suburbs will mean a much smaller mortgage, lower repayments, and for investors, a much higher rental yield.

REA Group executive manager of economics Angus Moore said the fact houses in these areas were among the most expensive in Australia meant there was a huge gap between typical house and unit prices.

“In suburbs such as Toorak, detached houses are going to be, for a lack of a better word, estates, and so are very, very expensive,” he said.

“Units are still on the more expensive end for Melbourne, so it’s not so much that the units are cheap, but the houses are just really expensive.”

Meanwhile, in suburbs dominated by units, houses can sell for a major premium.

“Surfers Paradise is the best example of that,” Mr Moore said. “The housing stock in Surfers Paradise is largely tilted to units, but the houses that are there are going to be big mansions.”

Mr Moore said relative affordability could make units a more appealing and realistic option for buyers with limited budgets.

“Because units have a lower land component, they are more affordable than detached houses,” he said. “For many people that is a more attractive option.”

In Paddington in Sydney’s east, where most properties are terrace houses, rarer apartments have provided an entry point for budget-conscious buyers, according to real estate agent Georgia Cleary of McGrath Paddington.

“Traditionally it was investors buying them, but in the last two or three years since interest rates dramatically moved up, investors have been selling out and first-home buyers and young people are buying,” she said.

It’s a similar situation in Hawthorn in Melbourne’s east, where investors have made way for new buyers trying to get into the market, according to real estate agent Luke Saville of The Agency.

“The gap between apartments and houses in Hawthorn is still extremely dramatic,” he said.

“The average buyer for a house is a young family with a couple of kids going to primary school or one of the private schools in the area.”

“Buyers for apartments are very much first-home buyers between the ages of 25 and 30, typically young professionals who want to be near a train line.”

“About 90% of apartments we’re selling are going to first-home buyers.”

Units offer higher rental yields in premium suburbs

Apartments in top-end suburbs tend to have higher rental yields than houses, allowing investors to capitalise on the appeal of a premium area without forking out millions.

The rental yield measures the total annual rental income received from a property before tax, expressed as a percentage of the property’s purchase cost. Generally, the higher the yield, the greater the cash flow.

An indicative rental yield for a suburb can be calculated using the suburb’s median rental price and median sale price.

For example, Kensington in Sydney’s east has an indicative house rental yield of 2%, based on a $3.6 million median house price and $1350 median weekly rent.

However, the suburb’s indicative unit rental yield is 4.3%, based on a median unit price of $970,000 and a median weekly unit rent of $795. That lower purchase price is also more in line with a typical investor’s budget.

Mr Moore said more-affordable units tend to have a much larger rental market than high-end houses.

“Relative to owner occupiers, there’s far more renters in apartments,” he said.

“You don’t see as much of a rental market for those ultra premium homes,” he said.

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