Whether it is an investment decision or you picking a new home, it may be time to consider a townhouse in Australia. A townhouse [also referred to as a townhome] is a collection of housing that is united by the same property, roof, or infrastructure.
With the ever-changing economy and housing dynamics, buying a townhouse is a growing investment in Australia, especially in major cities such as Melbourne, Sydney, and Brisbane.
If homeowners and investors are wondering about investing in townhomes, they will find that it can be a worthy choice. However, before making any purchase decisions, let’s dig into a few key considerations that can best answer this question.
Who Should Invest in a Townhouse?
The concept of a townhouse is not a new one as buildings with shared living quarters have existed for decades. Still, they have risen in popularity in recent years. People are looking for smaller places that allow them to have access to all key amenities, and give them more freedom and space than an apartment would.
There are some specific buyers that prefer to invest in townhouses. This demographic includes:
- Couples, specifically professionally working couples
- Younger/Smaller Single-Families
Professionally working couples and younger single families find townhouses appealing over a stand-alone home. After all, they require less upkeep than a traditional house and due to their busy lives and the limited spare time these types of families have, townhomes can become a no-brainer.
Also in the running are downsizers and retirees that look toward townhomes because moving into smaller dwellings can improve their savings which they invest into their post-retirement life including superannuation, health insurance, for family, or to pursue any hobbies. They also no longer need the ample storage as before so townhouses can work out perfectly for them.
Why Invest in a Townhouse?
A townhouse is a good investment opportunity, giving buyers the freedom of owning a place without necessarily dealing with a large home at one end or the space and renovation restrictions of an apartment. To look at it objectively, let’s consider a few pros and cons for townhouses:
- Capital growth
- Rental yield
Affordability and Maintenance
Compared to traditional detached houses, townhouses in Australia are significantly more affordable. They offer the best value and a low-maintenance environment. After all, the square footage and yard tend to be smaller.
Townhouses in Australia are showing more capital growth than apartments over time, while the comparison with a stand-alone home can be lower. Capital gains, meanwhile, can be a complex part of a townhouse, particularly if it’s under a strata ownership.
A townhome combines multiple complete living quarters, so you can rent out the portions your family is not physically using. You can take advantage of the extra space for rental yield opportunities.
Townhomes are typically located in major cities, such as Sydney, Melbourne, and Brisbane—perfect for busy professionals. Moreover, townhomes tend to be situated within short driving distance of many businesses for groceries, entertainment, food, and even places of work.
The beauty of this building type is that you get many of the amenities typical of an apartment. In contrast, with a house, you need to add or create any amenities that you want.
Townhouses in Australia often have renovated interiors, a small lawn, a play area, and a driveway for parking. You may even be lucky enough to find an Australian townhome that has a swimming pool, a fenced yard, or a garage.
- Smaller land size
- Strata title with limited freedom
- Lack of uniqueness and individuality
Smaller Land Size
A townhouse will not offer as much property as you would if you purchased a house. The location in urban areas often leaves little land to be claimed for private ownership. The land adjacent to the townhomes is often public domain with sidewalks, streets, parks, etc.
Most townhouses are strata title properties that allow you partial ownership over the area [with joint ownership of communal spaces. You have single ownership over the physical townhouse itself. A body corporation maintains common areas like the driveway, pool, and yard.
This strata title structure imposes some limitations on freedom of ownership. The body corporations will institute certain bylaws to be adhered to. Since the body corporation is taking care of maintenance and upkeep, they will require body corporate fees to finance any routine needs and emergency repairs.
Lack of Uniqueness
Townhouses are made to match all units in the same building. In this way, they are similar to an apartment and can lack the individuality some homeowners prefer in their living style.
Townhouse vs. House Investment
A house, sometimes referred to as a single-family home, is a free-standing structure. In contrast, a townhouse is not a stand-alone building. There are multiple townhomes placed together in one flat structured building, making townhouses multi-family buildings. A traditional house is detached from other buildings and homes.
Someone can use a townhouse as an investment property or a bridge to property ownership. Essentially, it is a middle ground between a stand-alone house and an apartment. With a townhouse, you will have easier property management and more space than an apartment.
Are townhouses worth the investment compared to houses? The short answer is yes. A townhome allows the buyer to get familiar with home ownership, which is especially beneficial for first-time owners. Due to the body corporation and smaller space, you will spend less on maintenance, repairs, and utility bills.
Of course, a house can have its benefits. It can be particularly advantageous for larger families, those who want a yard for social gatherings, or who need the extra space. Ultimately, a house will give you complete control of ensuring that your property meets your requirements.
Townhouse vs. Apartment Investment
Like a townhouse, an apartment is part of a multi-family building because the homes in an apartment complex are not stand-alone units separate from each other.
A townhouse would be a preferable investment over an apartment. You see your investment grow in value over the years with capital gains. That is not the case with an apartment as you never own any part of that property. However, they are both good options if you want to enter into property management, perhaps as a first home buyer.
An apartment can have its benefits for single persons or couples but the key reason a person should opt for a townhouse over an apartment is “space”. You have more space with a townhome, giving the buyer the feel of a house without the investment. Another appealing aspect of townhomes is that they may not have the parking issues common in apartments in densely populated areas like the CBD.
Additionally, both townhomes and apartments have lower expenses in utilities, maintenance, and repairs and a body corporation often manages the common areas in both.
Deciding on a Type of Property
Before deciding on the type of property to invest in, buyers need to ask themselves a few questions.
- What is your budget and affordability level?
- What is the size of your family?
- Do you have pets or plan to own any?
- What are your requirements for outdoor space?
- What do you need in terms of a garage or parking?
- What are your renovation and refurbishment preferences?
- Are you okay with shared facilities or common areas? What common spaces do you prefer?
- What are you willing to pay for a strata title or body corporation fee?
- What is your investment strategy? Are you going to be an owner-occupier or renter?
A clear answer for each of these will help narrow your search for home investment property.
Things To Consider When Buying a Townhouse
After thoroughly narrowing down your property search in Australia, understanding further considerations for a townhouse may be the next step.
Split vs Single Contracts
The contract type can be an important element in a townhouse deal. A split contract occurs when a developer sells a plot of land within a multi-unit complex. Developers require a buyer to settle the land before development commences but this can be seen as a risky decision by banks regarding loan and mortgage payments.
Property Ownership Types
Before purchasing a townhouse, you will need to decide what type of property ownership you’d prefer. Townhouses are usually under strata title. This has advantages in the form of common maintenance, with your principal responsibility limited to your unit. However, a strata title does come with levies and surcharges, often paid quarterly. An owner will likely need to contribute to a “sinking fund,” a pot for collective maintenance and repairs.
Moreover, a strata title can have clear by-laws that might restrict where you can park, whether you’re allowed pets etc.
Sometimes, a townhouse also falls under freehold ownership. That will come with fewer fees [besides taxes], though you will be responsible for your unit’s maintenance. In addition, there should be fewer restrictions on how you can improve your property.
No matter what type of ownership you have, your decision will ultimately be influenced by your budget. You should consider whether you will need to renovate your property [and what renovations options are available] and what your financial liabilities will be [such as tax and fees]. Make sure to account for your financial situation related to mortgage/loan management options.
Another factor to reflect on is the type of facilities and suitable accommodation for your family size. A townhouse may seem perfect, but does it have the right floor plan and storage space to meet your specific family’s needs?
When it comes to shared facilities, you might be swayed by a swimming pool, courtyard, gym, or entertainment hall. However, while some of these amenities may sound appealing, they can come with hefty fees.
Townhouses can offer a great property investment opportunity compared to a house or apartment, as long as you evaluate them on all fronts and pick the best option. They are also high in demand and limited in supply in the Australian real estate market which makes them viable for property investors and first-time home buyers as well. If and when you finally decide to invest in a townhouse, keep these key factors in mind to make an optimal and worry free investment decision.