Houses versus apartments

- Caglan Bagci | NZIJ MORTGAGES


On his first day Geppetto talked for an hour and had a fall after 10 minutes up the ladder.  The cut on his leg did not stop bleeding due to the wolfarin (medication to thin his blood) in his system.  After four hours at Wellington Hospital’s accident and emergency unit, Geppetto went home from his first day’s work. 
Although I did not expect to see him again, the next day he was back and up the ladder with his leg bandaged.  Geppetto takes pride in his work and sings, mutters and muses to himself as he goes along.  He occasionally stops for a cup of instant coffee and to impart wisdom from the experience of having lived a rich and full life.

Geppetto sat me down to talk about real estate the other day. ‘Only two things you need to know about real estate boy, what it is and where it is.’  What it is you can change, but where it is you are stuck with.’
Geppetto’s simple message was somewhat inspirational to me as a topic this month.  It struck me that the message is particularly significant in comparing houses and apartments.  The owner of a house can potentially change the dwelling (what it is) on the land (where it is) they own while the owner of the apartment has comparatively little opportunity to do so.

Both house and apartment will wear out.  The homeowner will pay for and organise maintenance for their house directly while the apartment owner will pay regular body corporate fees.  Some of this money will be allocated towards maintenance in the way the body corporate determines is most suitable.
Body corporate fees vary significantly from one apartment complex to another.  Lifts, pools, gymnasiums and common gardens will all significantly contribute to increasing costs.

In terms of finance, lenders are cautious about apartments.  Some lenders will simply not lend you money to buy an apartment while others will limit the lending significantly compared to a house.  The lenders are simply more confident of the re-sale value of a house compared with an apartment.

Supply of apartments can be more readily increased than supply of houses.  The scarcity of land accommodates high rise developments while single dwelling sections have comparatively little opportunity to increase in number.  For this reason apartments are unlikely to increase in value at the same rate as houses (when all else is fairly much equal). 

Apartments are a relatively care free lifestyle option.  Assuming you don’t buy in to a ‘leaky building’ you can come and go as you please with little hassle associated with your accommodation.

Singles will likely benefit from communal facilities such as gymnasiums and swimming pools.  These features are not likely to be as attractive to families with young children.

House owners will have the ongoing requirement of garden maintenance (mowing lawns, trimming hedges).
Coming back to Geppetto’s two factors (what it is and where it is).  Where it is can not be changed for either of them.  And this is the reason that location should always be your first consideration.  As for what it is, you simply have more choice with houses.

I am happy to respond to any questions on this article or anything in previous issues.  Send your questions to mortgages@nzij.co.nz