Escalating house prices in the regions and new caps on how buyers can borrow may have some property hunters considering purchasing a unit instead, but experts say there are a number of considerations purchasers need to make before taking this route.
Unit values, including townhouses, outpaced houses for price growth in regional Australia during the month of September, according to the latest CoreLogic figures.
This was likely due to a variety of factors, one of which was likely buyers who have been priced out of the housing market turning their attention to units, according to CoreLogic's head of research Eliza Owen.
"It could be both cyclical, and a reflection of the low housing stock across regional Australia. House movements have had a higher peak growth rate, so it could be that the house market will present a little more volatility than units as the cycle passes through its peak," she said.
"But it would also be higher demand pivoting towards units amid affordability constraints on houses. Additionally, lifestyle markets may see units being more popular with downsizers, and retirees in particular may look for cheaper, lower-maintenance housing."
Ray White economist Nerida Conisbee said that the demand for units was likely also being driven by the number of people looking to secure a holiday home while overseas travel was restricted during the pandemic.
"More people [are] looking for holiday or second homes - apartments or townhouses typically require less maintenance (less of a garden, smaller) and are good to lock up and leave," she said.
But buyers looking to buy a regional apartment for capital growth prospects needed to be wary that the market differed significantly depending on location and features.
"Anecdotally, we are hearing that people are buying better quality apartments for holiday homes than in previous cycles. For example, in the Gold Coast, the smaller cheaper apartments aren't selling as well as more expensive apartments," Ms Conisbee said.
"In some regional areas, there is an undersupply of apartments. This is particularly the case in places like Tasmania where development hasn't kept up with population growth and housing demand. Hobart isn't regional but the growth of the education sector in that city was a challenge for unit rents because there wasn't enough accommodation for students," she said.
Some demand could also be coming from mining towns, where smaller rental properties had proven popular, though investors needed to be cautious of the boom-and-bust nature of these locations, Ms Conisbee said.
"Mining towns often have a lot of more smaller homes, for example townhouses, and these are seeing very strong price growth - mining workers typically don't require big homes as they are not there permanently. As an investor you do need to be careful investing here given how cyclical this market is," she said.
What to look for when buying a regional unit
The buyers agents Australian Community Media spoke to said that they generally recommended investors steer clear of regional unit investments.
"Apartments as general rule of thumb aren't good investments as they have low land value, and a higher building value. Given buildings depreciate and land increases in value, you shoot yourself in the foot when it comes to capital growth on an average apartment," said Miriam Sandkuhler CEO and buyers agent at Property Mavens.
It's a sentiment shared by buyers President of the Real Estate Buyers Agents Association of Australia and founder of Cate Bakos Property, Cate Bakos.
"In most regions, the land is still relatively affordable, generally speaking, and with an abundance of land to choose from, a small apartment will not likely be favourably look at by future homeowners. Capital growth is driven by the desirability of a property, and desirability hinges on local owner occupier preference," Ms Bakos said.
There were, however, exceptions to this general rule.
"The exception to my statement about an apartment in a region, however, is if there is something particularly special and scarce about the property: for example, water views, beach frontage, a particularly special vista, or a heart-stopping heritage significance to the building. Some of our coastal regions and provincial towns offer this," she said.
Buyers shopping for a regional apartment should be keenly aware of the fundamentals underpinning growth in the local area.
"[Look for] strong population or a growing population, a city with more than 50,000 residents, a tight vacancy rate with professional workers represented well in the tenant pool, a stable employment hub, and a city with a large number of employers. The city should also be a drawcard for domestic travellers and needs to be supported by a great raft of shops, pubs, cafes and lifestyle offerings, ie. theatre, sporting etc.," Ms Bakos said.
Both Ms Bakos and Ms Sandkuhler recommended targeting properties in smaller blocks.
"Try for a villa unit in a smaller grouping instead of an apartment. The higher the land value in the property, the better," Ms Sandkuhler said.
"An attractive, well-located apartment in a boutique block with reasonable ongoing running costs would be a critical set of objectives. High rise, high outgoings type buildings are a big no no for me, as are brand new. The land-to-asset ratio must be high, otherwise the capital gains will be moderate at best and negative at worst. In short, the dwelling value cannot eclipse the associated land value. This is a rule of thumb in any capital city, but it's absolutely critical in a regional city," Ms Bakos said.