Property Cycles

In my investment report dated March 3, 2015, I wrote:

“As can be seen from the data and research above, Brisbane offers an excellent investment opportunity to take advantage of the forthcoming upturn and enjoy a great long-term investment. According to the long-term trendline, Brisbane apartments are currently well below trend, which may present an excellent long-term opportunity.”

At the time, Brisbane felt flat and uninspiring. It was still recovering from the GFC and the Brisbane floods. Prices had barely moved for years. Even with strong data pointing to an upturn, it took until 2019–2020 before momentum really arrived. Back then, rental yields of around 7% were common.

In hindsight, no one could have predicted just how powerful that upswing would be.

Perth: Written Off… Then Exploded

In the early 2000's Perth had been the quiet achiever with 120% house price growth over the previous decade.

It was not until 2002 that I decided to look into the Perth market. At that time we doid not have the research tools we have available today.

So I made numerous personal visits to try to understand the Perth market, as there were very different drivers than that seen in Sydney or Melbourne.

In early 2003 I was featured in a newspaper article telling people to "run, not walk" into the Perth property market. Clients told me I was wrong, Perth prices would not climb any further. But even brand new apartments could still  be purchased for under $300,000 and generated a 7% rental return. 

Prices soared until the end of the mining boom around 2008 with 130% growth.

Then Perth property prices went sideways for over a decade. From roughly 2008 to 2021, values barely moved.

By 2021, you could buy a house in Perth for around $400,000 and rent it for roughly $500 per week — a yield near 7%.
Fast forward to today and that same house may be worth closer to $700 - $800,000, with yields compressing into the 3–4% range.

Once again, the biggest gains came after most investors had given up on the market.

Today everyone is looking for the next "hotspot" - the next place to soar - and brand new "advisors" are pushing their client sinto regional tows and far flung areas based on what happened during Covid, when there WAS en exodus from the Australian capital cities to the regional towns.

Why Apartments in Sydney and Melbourne Are Misunderstood

"Apartments don't go up in value." "Only buy houses." "Never buy high rise" these are common phrases you hear these days from many new advisors, and the public on property forums.

To be clear, houses DO outperform most apartments in capital growth terms over the long term. Of course in a city like Sydney, an apartment with a harbour view, even distant, can command top prices, and have shown excellent growth. 

CASE STUDY

A example is the 2 bedroom one bathroom apartment I purchased on the 8th floor in Cremorne/Neutral Bbay with a harbour view in 1988 for $475,000. Today it is valued at $1.6M, which equates to around 5% pa return. (If I had purchased in 1985 instead of 1988 it would have been around $350,000!)

My harbour view:

So clearly it an uneducated view to say "apartments never go" up or similar.  BUT, Sydney houses are expensive. Median house prices now exceed $2 million.

Apartments, however, remain far more affordable — often under $1 million.

The price gap between houses and apartments in Sydney has never been wider.

Over the past decade, Sydney units have significantly underperformed houses, growing at roughly half the annual rate. Hence why the comments "always buy houses never units."

But this gap won’t stay extreme forever.

Sydney is Australia’s most popular destination for new migrants, slightly surpassing Melbourne. But not everyone can afford a $2–3 million house. In fact, it is probably fairer to say most cannot afford a $2-3 million houses.

But many can afford a $600,000–$1 million apartment in a great location. This is already reflected in the fact that apartment sales outnumber house sales in Sydney.

Sydney is the only city this happens, clearly because of price.

Over time, affordability pressure forces demand toward apartments. Whether or not they would "choose" an apartment.

That is how apartment cycles begin.

For pure investment, excluding lifestyle or amenities or views, in Sydney you could consider:

• Older low-rise brick buildings

• Small number of units
  

• High land content

• Premium inner and middle-ring locations

• Areas not zoned for high-rise redevelopment
  

Whther in Sydney or Melbourne, these properties have both scarcity and land value — two things that matter in the long run. They were built in1960's when control was a lot tighter around residential developments.

The was no cutting corners and most of the materials were sourced from Australia. That these unit blocks are still here after 50 years is a testament to their quality.

Body Coporate  fees for red-brick units are also usually much lower than those for modern apartments and often have  a sinking fund that has been established so there are 40 years of funds amassed that can be drawn on.

Melbourne: Quietly Setting Up for the Next Cycle

Melbourne has underperformed for years after being one of Australia’s strongest markets for decades. However, signs of a turning point began emerging in early 2025, with house prices starting to lift. The gap between houses and aprtments in Melbourne is at a historic high. As house prices in Melbourne lift, that gap will increase.

Melbourne apartments currently offer:

• Strong rental yields (often 6–7%)

• Prices below replacement cost

• Large discounts compared to houses

• A long period of stagnation (often a precursor to the next upswing)

As Melbourne house prices eventually climb closer toward Sydney levels over time, affordability pressure will again push demand into apartments — just as has happened in Brisbane, Perth and is starting to happen also in Sydney.

This is how cycles repeat.

Yield vs Growth: Why Most Investors Get Stuck

Many investors struggle to buy more than two or three properties because they chase houses with large land blocks but low rental yields.

A 2% yield on an expensive house creates:

• High mortgages

• Large holding costs

• Cashflow stress

• Which often leads to forced selling
  

Meanwhile, multiple well-chosen apartments with higher yields can:

• Cover repayments

• Improve borrowing capacity

• Allow portfolio growth

• Reduce emotional pressure

The key is quality selection — not generic high-rise stock with hundreds of identical units, but scarce, well-located properties with genuine land value.

If buying numerous properties, the strategy today is different from decades ago. Then becuase house prices (and mortgages) were significantly lower, you could buy 2 houses or high capital growth properties for every high yield apartment. Today you need to do one for one.

Where to Buy: 2026–2028

Forget “hot tips” and hype suburbs.
The principles don’t change:

• Property moves in cycles

• The best opportunities feel boring

• Yield supports portfolio growth

• Scarcity drives long-term value

• Capital cities outperform regional towns over long periods

• Apartments periodically outperform houses when price gaps become extreme

If I could only buy one property today — especially as a first home buyer or early-stage investor — I would seriously consider:

• A well-located older apartment in Sydney

• Or a high-quality apartment in Melbourne with strong yield and scarcity

Both markets are setting up for future catch-up cycles — just like Brisbane and Perth did before their booms.