HIGH RISE, HIGH RISK

Not all property is equal, especially when it comes to high rise apartments. Just take a look around most of our cities and try to count the number of units in these virtually identical high rise towers- it will be thousands, many thousands. But that doesn’t seem to stop the developers building them and selling them to unwary buyers.

In most cases these properties are sold to investors –as few buyers actually want to live in them themselves, and for good reason. Noise issues, extreme density of living, small floor plans, inability to improve or add value, compromised design and, of course, no scarcity or rarity factor. To me, that also means they do not make good investments.

Although the sales patter centres on the investment ‘potential’, you only have to look at their track record to realise this ‘potential’ is unlikely to ever be realised. The sheer number of apartments means that landlords are constantly competing with each other for tenants, causing a dramatic reduction in rents.

Not only are they competing with the identical building next door, across the street or in the next block, they are also competing with hundreds of identical apartments within the same building. We often hear feedback of tenants moving floors within the same building or moving apartments on the same floor.

As the rental yields diminish, so too does the involvement and care. Internally, apartments quickly show signs of neglect and general maintenance of common areas also starts to decline. Very soon, these high rise towers not only perform badly on an income bases, but the ‘potential’ capital gain also declines.

Unfortunately, these heavily discounted rents can also have a flow through to traditional housing and cause temporary instability in the wider market. Be assured, however, this is just temporary as we find many high rise tenants also soon realise the shortcomings of these properties.

Until next week,

Jock Bing