When we compare older style apartments and new build apartments they are both completely different.

The new apartments are now in relatively high supply (however this will not last long) and demand is more often than not driven by the shiny and new appliances and fittings which quickly depreciate and perceived taxation benefits which are often misunderstood

They also lack the important factor of scarcity which is a key driver in predicting capital growth. I have always said buying a good scarce investment property is no different to buying a classic car or fine art. It’s the scarcity that drives value. Its no different to property. I always avoid homogenous product.

Older style apartments however, attract different buyers who are looking more for capital appreciation through the value of the land and sharing this highly valuable commodity with as few owners as possible, location meaning proximity to a village and amenities, privacy, security, natural light and orientation etc.

In the beginning, the new apartment is attractive, it is new and receives all the attention, but after a few years of depreciation and wear and tear the older style apartments start to look very good in comparison. This is because they are often better built, have lower density and are often larger which is critical today. Space is the new currency!

Investment house prices today are out of the reach of most people. The median house price of a 2 bedroom cottage in Albert Park or South Yarra is now $1.5m. Its not so long ago that I was buying these for under $1m. Investment in apartments close to the city due to affordability and position will in my view drive investment performance of these assets. If we look at approval for new apartments both commitments and building is falling sharply.

We are not building new apartments on the same scale of 10 years ago. Anecdotally, I was speaking to a Crane Driver in Melbourne last week who told me developers in the CBD, Southbank and Docklands were putting off hundreds of construction workers as there are fewer future new apartment projects in the pipeline.

The other issue with new apartments is the well published cladding issues and quality which make them more difficult to sell. The older style apartments don’t have these issues. I have had recent experience in Hawthorn and South Yarra advising clients who own buildings with these issues and its tough because the buying market is now well briefed and educated on these issues.

Whilst apartments have underperformed, investment houses in the last 7 years I believe this is about to change. Historically these markets move in cycles of 7-10 years with periods of low growth like we have had for older style apartments to be followed by periods of higher growth.

I believe we entered this phase late last year and the next upward swing will continue for 5-7 years.

In addition, population growth in Melbourne is the fastest of any capital city in Australia with approximately 130,000 new entrants into Melbourne last year who will all demand accommodation.

With the supply of new apartment construction falling sharply, the rising cost of investment grade houses, I see older style investment flats performing well over the next cycle in a higher capital growth phase.

A good example of this is 11/11 Herbert street St Kilda. A south facing 2 bedroom apartment sold for $730,000 after being advertised in the range of $600,000 to $640,000. Herbert street is a good street overlooking St Kilda Botanical Gardens, however the balcony over looked out over a  car park at the rear. This was a good result.