UNITS are proving a better investment than houses, with apartment prices growing 1.1 percentage points more annually than house prices over the past five years - or altogether 5.62 percentage points more, through compounding.
Property researcher RP Data shows that while capital city unit prices grew by an annual average return of 2.9 per cent over the five years to December 31, house prices grew only 1.8 per cent.
Cameron Kusher, RP Data senior research analyst, said that over the long term house prices had outperformed units but the reversal in the trend was explained by a number of factors.
"Affordability is a key factor, particularly in a market like Sydney where the median house price is about $165,000 more expensive than the median unit price," Mr Kusher said. Owner-occupiers could live closer to the city centre than if they were buying a detached house.
Investors can also achieve higher rental yields on units than houses. Mr Kusher said gross rental yield on capital city houses was 4.2 per cent and 4.9 per cent for units.
In Sydney, units have clearly outperformed houses. The average annual price growth for Sydney houses over the past five years is 2.7 per cent and 3.6 per cent for units. But in Melbourne, where there is an oversupply of units, the gap is smaller. Melbourne house prices show an annual average growth of 3.3 per cent compared with 3.9 per cent for units.
There was still a lot of supply to come on, particularly in Docklands and Southbank, Mr Kusher said. "It will be interesting to see if, over the next few years, given that there are concerns about an oversupply of units, the outperformance of Melbourne's unit market holds."