Seven reasons you should aim low when investing in an apartment

Tuesday, 1st Jul 2014


It’s easy to understand why some investors are attracted to apartments, with their low maintenance appeal, strong rental returns, and relatively affordable entry price.

When it comes to apartments, as with any investment, numbers matter. And one of the numbers that can play a major role in determining investment success is the number of apartments in the complex.

High-rise complexes, which often contain hundreds of apartments, can sometimes provide good investment opportunities, especially when there are scarce views on offer. But as a general rule, investors are better off investing in low-rise or boutique complexes. Let’s look at why.

1. Scarcity and future supply

Low-rise complexes are typically in areas with strict height planning controls, reducing the likelihood of any significant future supply that could dampen capital growth. High-rise towers, on the other hand, are typically built on converted land in and around the CBD and can quickly shoot up in clusters.

2. Competition

If you own an apartment in a complex with hundreds of almost identical properties, you will always be in competition for tenants and buyers. This will increase the chance of vacancy and restrain value growth.

3. Land value

Apartments in a low-rise complex typically have a higher land-to-value ratio than their high-rise counterparts. This means they generally have a better likelihood of achieving capital growth, as it’s the land that appreciates.

4. Owner-occupier appeal

Low-rise complexes are typically targeted to owner-occupiers, which ironically makes them a better proposition for investors. Owner-occupiers tend to take pride in their home and are less likely to sell up when times are tough.

5. Unfavourable comparisons

In high-rise complexes, which are mostly investor-owned, distressed sales happen more frequently. This is bad news for the value of comparable properties, as it’s easy for valuers and buyers to make comparisons.

6. Strata Fees

High-rise complexes typically have more amenities and facilities, such as lifts, pools, and gyms. This is great if you are a tenant, but it often means higher strata fees for the owner, which can quickly erode rental returns.

7. Control

Property investors like to be able to control their investment as much as possible. As the owner of an apartment in a low-rise complex, you have greater control over the actions of the strata company as your ‘voting share’ is greater than with owners in a high-rise.