High Risk Multi Storey Apartments

Why Multilevel Apartment Development is Risky in New Zealand

Multilevel apartment developments can offer significant financial rewards, but they also come with unique challenges that make them a high-risk investment, particularly in New Zealand. Here’s why developers need to proceed with caution before committing to these ambitious projects.

1. High Construction Costs

New Zealand’s construction costs are among the highest in the world, driven by labor shortages, strict building codes, and expensive imported materials. The cost per square meter for multilevel buildings can be significantly higher than for low-rise developments, putting pressure on project profitability.

2. Strict Compliance and Regulatory Hurdles

New Zealand has some of the most stringent building codes globally, particularly in relation to earthquake resilience, fire safety, and weather-tightness. Developers face complex compliance requirements that can lead to costly delays and design changes if not managed carefully.

3. Funding Challenges

Securing finance for multilevel developments is often more difficult, with banks and other lenders requiring higher equity contributions, pre-sales, and stringent feasibility studies. Lenders are also more cautious in a high-interest rate environment, making funding expensive and harder to secure.

4. Market Volatility and Over-Supply Risk

Multilevel developments typically take years to complete, exposing developers to market cycles and potential over-supply risks. If the market softens during the construction period, developers may struggle to achieve the pre-sale targets needed for financing, or be forced to discount units to clear inventory.

5. Construction Delays and Cost Overruns

Construction delays are common in multilevel projects due to their complexity, potential labor shortages, and unforeseen site issues. These delays can significantly impact cash flow, profitability, and investor confidence.

6. High Holding Costs and Negative Cash Flow

With long build times and high interest rates, developers face substantial holding costs, including land finance, marketing expenses, and pre-construction overheads. This can result in extended periods of negative cash flow, putting pressure on project viability.

7. Strata Management and Ongoing Costs

Once completed, multilevel apartment buildings incur ongoing strata management and maintenance costs, which can reduce long-term profitability if not carefully planned and budgeted for.

Is Multilevel Development Still Worth It?

Despite these challenges, multilevel apartment developments can be highly profitable if carefully managed. Success often comes down to strategic site selection, efficient design, accurate cost forecasting, and strong market demand.

Thinking of tackling a multilevel development project? Contact us today to discuss feasibility and risk management strategies.