Townhouse capital growth

From: Patrick Bruadair

I've been on the lookout for a suitable four unit development block (1012sqm block, 20m x 50m). I plan to build 4 double storey townhouses with strata titles(idea is to sell two, and hold two for rental).
I'm focusing my search on reasonably good capital growth suburbs close to the CBD in Perth (e.g. Victoria Park, within 5 km of CBD).A few people I've spoken to have claimed that capital growth for townhouses is unlikely to be good, even if the historical growth for the suburb is attractive (reason being that only four "doghouses" could fit on a 20m x 50m site, and it's the land, not the townhouses, that appreciate in value).
I've talked to several RE agents, who give me conflicting information. Has anyone on the forum got real capital growth data experience for similar townhouse developments near the CBD in major cities?.
I believe Michael Yardney gets involved in similar developments in Melbourne (any feedback would be appreciated Michael).

Many thanks,

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Reply: 1
From: Rolf Latham

Hi Patrick

Dont know about WA.

Townhouse and Villa Developments are still relatively new, although it could be argued that there is little difference between a terrace and a townhouse !

Its stands to reason that if home unit performance is lower than that of free standing homes, then other multiple dwellings sharing a block of land may be similarly effected.

Some work on stats we have done here suggests that the suburb has much more to do with performance than the type of dwelling. For example it can be shown that townhouses and units perform similarly to houses in say the Lane Cove area. However in areas where development is less limited then there will still be lotsa new stuff to soak up demand, therefore less growth.

What I am saying is that there is no real rule of thumb - generalisations tend to be exactly that.


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Reply: 1.1
From: Rixter ®


The advantages of units. townhouses and villas to investors building a large portfolio are numerous, the main advantages are -

1/ Maintenance- Looking after and maintaining a 400sqm strata with a 110sqm villa on it with extensive paving, little lawn and reticulated garden is far easier and more cost effective than maintaining 1000 sqm of land with a 120sqm house, massive gardens and 600 sqm of lawn.

2/ High Gearing Advantages - The bricks and mortar are depreciable, the land is not. Therefore, the larger the villa or townhouse the greater the deductions.

3/ Afford ability - To get access to high growth areas, afford ability of a house on a large block restricts us. Villas and townhouses are sometimes more affordable and the growth comparable. As a general rule of thumb its far better to have a small parcel of land in a high growth area, than a large maintenance nightmare in an area of low growth.

In summary, we as investors want to obtain good growth, maximise our tax deductions and increase our income with minimal effort and outlay. What's more, home units in Perth rose by 21.7% in the March quarter (REIWA), which is excellent growth in anyones language.

Just some food for thought.

Happy Investing,
Rixter :)
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