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Newer apartments facing lower growth, hefty repair bills

By mbrownlee
14 August 2019 — 1 minute read

With apartments that were built in the past 20 years being hit with substantial repair bills and facing low growth prospects, SMSFs may want to reconsider holding these types of properties, says a market analyst.

In an online article, buyer’s agent and head of research at Propertyology, Simon Pressley said with medium- to high-density apartments constructed in the past 20 years are currently facing a “toxic combination” of poor prospects for price growth, low-quality workmanship and even major structural defects in some cases, investors may want to consider selling.

Research conducted by Propertyology over the past five years, Mr Pressley said, indicates that the differential between growth in medium house price and median apartment price in Australia’s biggest cities was around 20 per cent, in some cases, more than 30 per cent.

“Propertyology expects this price growth differential will continue to widen for an indefinite period of time,” said Mr Pressley.

“What this means going forward is that if the medium house price within a specific location increases [by around] 20 per cent over a five-year period, the value of an apartment is likely to decline.”

In order for the owner of a medium- to high-density apartment to achieve even a modest amount of growth in their asset value, he said, their local market would need to produce a property boom.

“Such a possibility currently seems many years off for most Australian capital cities,” he warned.

In addition to these concerns with financial performance, these dwellings can be laced with repair bills worth millions of dollars due to extreme structural integrity concerns, he cautioned investors.

The absence of prudent quality control within the construction sector over the last two decades has resulted in a “deplorable quality of workmanship”, primarily within Australia’s mass-produced dwellings in Australian’s biggest cities, he warned.

Substandard materials and workmanship within a high percentage of buildings from the mid-1990s onwards has led to major structural defects, foundations cracking, serious waterproofing issues, combustible cladding and general fire safety concerns, fragile balconies, and fittings with very low lifespans.

Mr Pressley referred to a study in 2012 by the University of New South Wales’ City Futures Centre which found that 85 per cent of the buildings built since 2000 had at least one significant defect in their complex.

“An entire generation of housing supply has been corrupted by greed, vested interests, and little regard for quality control, safety and consumer best interests,” he said.

“The sector has totally lost the trust of the buying public. State and local governments are as much to blame for this bubonic plague as any stakeholder within the construction industry.”

Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au


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