Six Reasons Why High-Density, High-Rise Apartments Scare Me

Just this week we had two lovely clients and a prospective new client ask us about our thoughts on a high-rise, high-density apartment they’d each picked out; one in the CBD and one in Docklands. It was an interesting adventure for one who’s preapproval was deemed invalid for the property she’d set her sights on.

So while she was fully assessed and pre-approved, the lender was not so enamored with her selection and it was only after our insistence that she check in with her lender about her chosen property prior to signing a contract that we were able to save her from a frightening mistake.

Nobody wants to walk away from a 10% deposit cheque after all.

When clients ask me what I think about Docklands Apartments, or South Yarra/Prahran Towers, (or the like), the investment advisor in me screams “no” for quite a few reasons, but the owner-occupier appeal is something I can’t deny home-finders.

What do you say to a client when the purchase is a terrible investment idea and a fun lifestyle concept?

Rather than be a voice of doom, I’m better off spelling out the key risks for them.

1. Over-supply (both now and into the future) threatens the capital growth of these types of assets
2. Banks don’t favour them and they are harder to finance. Even if you can finance them, mainstream buyers can’t. Four property-related things that banks hate are:
   i) small floor area. Mortgage insurers won’t touch anything with a FLOOR AREA under 40sqm (and often 45sqm). Don’t let an agent tell you that carparks are included in that area measurement. They aren’t.
   ii) over-exposure to a block. In other words, if Westpac (as an example) decide to cap their exposure at 20% within a building – and if they already have reached their quota – they may decline your finance.
   iii) vacancy rates. Many are vacant based on oversupply and banks know this.
   iv) if the property is on a main road (they often are) and particularly if it’s commercially zoned or above shops, banks could view them quite differently altogether and commercial lending rates (and LVRs) could apply.
   Now is not the time to challenge lenders with quirky or difficult assets.
3. Desperate sales causing low valuations for others in the block
4. Investors competing with each other to find good tenants and edging down advertised rental
5. Views being blocked when a new tower emerges; then fire-sales often being triggered when owners panic. This in turn can cause valuations to dip.
6. SUPER high Body Corporate rates. Best to always check the OC fees before getting excited. Lifts, pools, gyms, concierge etc…. they all spell upkeep and expense.

There is no doubt the location, views and lifestyle can be amazing. I say to anyone – “if you are happy with your investment portfolio and you can happily afford the high outgoings, I’ll help you with whatever you decide, as long as you are doing this for YOU and not as an investment decision.”

“Let this overview help you to be mindful of the risks and costs associated with high-rise, high-density properties.”

And I’m not even touching on Off-The-Plan… That’s another segment.

One of my favourite sayings is “We don’t like properties which the banks don’t like.” Having worked as a mortgage broker thoughout the GFC was one of the most valued experiences I could have had to prepare me for Buyers Advocacy.