This week, Secret Agent compares new and old apartments around inner Melbourne to see which were more valuable in 2016.
The sample included 1674 apartment sales across inner Melbourne’s suburbs and the CBD from January to December 2016. New apartments are those built from the 90s onwards, excluding any recent off-the-plan apartment sales. Old apartments include Art Deco units and flats located in 60s to 80s brick buildings.
The model accounted for location, size of the apartment (number of bedrooms, number of bathrooms, floor area of internal and external space) and whether a car park was included or not.
It was found that on average and holding all else constant, older style apartments in inner Melbourne are expected to sell for $38,000 more than new apartments, which is a 5.75% increase in average expected sale price. This is significant at all levels of significance (p < 0.01). The results are shown in Table 1.
A comparison based on the number of bedrooms shows that one and two bedroom apartments of both styles had similar average sale prices. It is mostly with very small (studio) and very large (three or more bedroom) apartments where we can observe the biggest price differences.
Old studio apartments sold on average for 27% more than new studios, while old apartments with three or more bedrooms sold for 19.5% more than their new counterparts.
Different apartment sizes can be accounted for by comparing them on a price per square metre basis. Table 2 shows that for old apartments, the price per square metre declines as the number of bedrooms increases. The best value is gained from apartments with at least three bedrooms, which sold on average for $8,600/m2, while older studio apartments were the most expensive per square metre at nearly $10,000/m2. For new apartments, smaller apartments are all similarly valued, with 1 bedroom selling cheapest at $8,400/m2, nearly $800/m2 cheaper than older brick and Art Deco apartments. New apartments with three or more bedrooms are more expensive than larger old apartments at nearly $9,100/m2.
While this data alone gives no definite explanation as to why old apartments are valued more highly than newly built apartments, some possible reasons include:
- On average, older apartment buildings will be smaller than new buildings, which may make them more appealing to buyers. They may also be better located to buyer’s preferences.
- Well maintained or refurbished apartments located in older buildings often have a lot more character than new apartments.
- Our sample contained more than twice as many new apartments compared to old, suggesting that the relative rarity of good quality, older style apartments makes them more appealing.
- Older apartments often have more spacious layouts and higher ceilings.
Even so, it is somewhat surprising that the average sale price of older apartments surpasses that of new apartments. Often more amenities (gym/pool, underground parking, etc.) are found in newer apartment buildings and they are generally easier to maintain. This may suggest that new developments are not meeting the needs of buyers, who instead are willing to pay a premium for older apartments.