Many think that the most desirable apartments in a high-rise are on the top levels. Most apartments are originally priced to reflect this (mis)conception. Supported by our work on buyer preference and analysis of resale prices, we challenge this line of thought and put forward the need to value and price high-rise apartments differently.
Too few projects reach their full potential
Nearly every new apartment project must pre-sell enough product to obtain development finance. It is usually the most desirable apartments which sell first. Often these apartments are the most affordable as well. More often than not the apartments remaining for sale offer the least value. Usually, the new apartments left after building settlement have to be discounted to allow development profits to be realised. The net result often gives a gross realisation well below a development’s potential.
Our analysis of apartment project settlements shows that it is often the lower level apartments which sell first. Contrary to popular opinion, high-rise apartments do not always sell from the ‘top down’.
Existing pricing methods
Most new apartment developments are priced under the assumption that apartments at higher levels embody a higher value than those closer to the ground. Typically, prices escalate between $2,000 and $3,000 per floor. Over a 30 storey building this can translate to a price range of $90,000 for an identical apartment.
Is this process justifiable? Does the market place greatest value on the highest apartments? Our primary research conducted with the market would suggest otherwise.
In the course of conducting qualitative research, buyers explained to us that the most desirable location in many high-rise developments was often between levels five and ten, assuming views were not blocked by other buildings.
Despite the often panoramic views up high, the lower level apartments are more popular because they were high enough to achieve a view but close enough to the ground to not distort ‘human scale’.
Our approach allows for a more even distribution of pricing, with higher prices for the more desired apartments – often those located between levels five and ten. We narrow the price range so there is a smaller price variation between apartments on the lower levels and apartments on the top floors. This often ensures that the higher apartments offer better value for money, thereby creating greater market acceptance earlier in the marketing campaign. This approach helps to increase the potential sales revenue from the development.
This approach does not only apply to high-rise developments but to lower density projects and residential subdivisions as well, where current pricing strategy is based on outdated industry practices and not what the market really wants.
“This report is republished with permission of Matusik Property Insights.”