The growing appeal of apartment complexes in Western Australia
Perth investors are increasingly turning to multi-unit developments, like apartment complexes, as the property market tightens and government policy favours urban density, making well-located apartment buildings a good investment.
Favourable Perth market conditions
Perth’s rental crisis is good news for landlords, while the affordability gap between house prices and average earnings means multi-unit properties are in far greater demand than detached houses.
Historically low vacancy rates and correspondingly high rental rates means that investing in a multi-unit complex, like an apartment building or town houses, offer the promise of high returns and a higher rental yield.
Demographic shifts driving apartment demand
Single-person households are growing in Western Australia, as are the number of households without children. Even for those with children, the average family size has reduced, making apartment living an increasingly popular choice.
As Generation Z faces increasing house affordability challenges, they are increasingly opting to rent or buy apartments. Typically, as fewer companies promote working from home, young professionals are looking for homes close to where they work.
Rental yield advantages
Since 2020, median weekly rents for home units and villas have more than doubled, meaning they offer the best returns for investors.
Western Australia dominated the top 200 Australian suburbs ripe for investing in, with some suburbs commanding rental yields of up to 38%. Which means investing in apartment complexes, home units or villas in WA is one of the best property investments you can make in the current market.
Are apartment buildings a good investment? Understanding the financial benefits
Apartment buildings can be a great financial investment, providing you do your research and choose the right project. One of the key advantages that a multi-unit apartment building offers is the diversification of your income stream.
Multiple income streams from 3+ unit developments
A project with more than three units within offers multiple income streams. Rather than being reliant on one tenant for rent or cash flow, a three unit development plan means your income is spread across multiple tenants. As tenancies expire at different times, you also have the opportunity to systematically raise individual rents, rather than only being able to increase the rent once a year.
Improved risk diversification vs single properties
Diversification doesn’t just mean that you have to mix asset classes. It can also mean spreading risk within a single investment, something that you can do if you buy or build multiple units, rather than investing in a single property.
Investing in a multi-tenant structure acts as a financial shock absorber. A bad tenant or a short-term vacancy in one unit won’t wipe out your entire cash flow, making the asset less volatile. Having all your assets in one building also makes your portfolio easier to manage, insure and maintain, which also reduces your exposure.
Tax benefits and depreciation advantages
Building a new multi-unit property can unlock significant tax benefits for you as an investor, through various deductions and the ability to depreciate the asset. It’s worth working with a tax accountant to make sure you take full advantage of all the benefits available to you.
Long-term capital growth potential
A multi-unit development offers capital growth potential in two ways. The first is the market appreciation of the land that your development is built on, which is likely to accrue value as time passes.
The second capital growth potential for your multi-unit development comes from the units themselves. Unlike a single-family home whose value is primarily determined by comparable sales or rents, the value of an apartment building (especially 5+ units) is often determined by its Net Operating Income (NOI). By actively increasing rents or reducing operating expenses, you can influence and increase the property's value.
Breaking down apartment complex construction costs
Before you embark upon a development, it can be useful to break down the construction costs.
Cost per unit for 3-unit vs larger developments
The cost-per-unit typically decreases significantly the more units there are in your development. Known as economy of scale, spreading costs like service connections, foundations and roofing across multiple apartments makes the process significantly cheaper per unit.
While it might be more expensive to pay for the service connections of 5 units than it would for a single home, it will not cost 5 times as much, which means the cost for connection per unit is cheaper than it would be if you were building a single home.
Improved land efficiency
Land efficiency means the number of dwellings you are allowed on a block of land. Your block’s residential design code (R-Code) determines what you can build on it. As long as you adhere to the block’s R-code, building more units will increase your land efficiency.
Budget considerations for multi-unit development in Perth
If you want to successfully build a multi-unit development in Perth, you need to be across the budget. Your comprehensive budget should factor in land acquisition, soft costs like planning and approvals, finance and interest payments, hard costs like siteworks, utility connections and construction costs.
You will also need to account for sales and marketing, which includes agent fees and commissions, whether you are intending to sell the development or continue to be the landlord.
Is buying an apartment a good investment vs building multi-units?
Both buying an apartment and building multi-units can be good investments as homes are in high demand. The better investment depends on your risk profile and your investment strategy.
Buying an apartment for an investment property makes you a passive investor. The apartment you purchase is an investment via capital price growth as the property market improves and you steadily pay off the loan. If you choose to rent it out, you are also making an income through rent. The risk is lower, but so is the return.
Building a multi-unit development requires a lot more upfront capital and carries a lot more risk. The return profile is far larger. So if you have a healthy tolerance for risk and measure investment in terms of the size of your return, building a multi-unit apartment block may be a better investment. If you are risk averse, buying an apartment may be a better risk for you.
Key considerations before investing in multi-unit properties
Developing a multi-unit apartment complex can be incredibly lucrative due to rental demand, but there are some things to consider before you begin your development.
Location and tenant demand analysis
The success of your multi-unit development in Perth depends on a thorough location and tenant demand analysis. You need to make sure the local market wants your product. You should do your due diligence by assessing the development’s proximity to transport links, schools, activity centres, and major employment hubs, as these factors drive rental yields and capital growth.
By deeply analysing the demographics, average rents, and vacancy rates in the immediate area, you can tailor the unit sizing, configuration, and finish specifications to match the needs of your target market.
Financing options for apartment complex construction
Securing appropriate financing is a critical step, as construction loans for multi-unit developments differ significantly from standard residential mortgages, often requiring progressive drawdowns tied to construction milestones. Developers in Perth typically access funds through major banks, second-tier banks, non-bank lenders and private funders.
A strong financial feasibility study and a clear exit strategy (sale or refinance) are essential to securing the most competitive interest rates and terms, ensuring the project's financial viability.
You also need to ensure you have a comprehensive understanding of the apartment complex construction cost before the project begins, with contingency cash built in, as costs can spiral.
Property management for multiple units
Effective property management for a multi-unit complex requires a systematic, professional approach to safeguard the investment and maximise returns. The best strategy focuses on tenant retention through clear communication, efficient handling of maintenance requests and consistent application of lease agreements. You could consider hiring a property manager solely focused on rentals or partner with a property management company to make sure your units are managed with consistency and expertise, minimising vacancies and regulatory compliance risk across the entire asset.
Timeline from planning to completion
The typical timeline for a multi-unit development in Perth, from initial planning to final completion and handover, generally spans between 18 to 24 months, but can be longer for large or complex sites.
You need to factor potential delays into your budget and stay on top of the project management to mitigate any delays that could impact your return on investment.
Get started with your multi-unit development in Perth
The key to successful wealth creation in this space is partnering with an experienced property development specialist who can simplify the entire process, from initial feasibility and design to final construction and subdivision.
At Novus Projects, we're committed to supporting your development needs and would love to be your development partner. We can provide a detailed quote (or tender) on your own plans. Contact us today to discuss how we can help bring your vision to life.