There are 3 main problems with OTP apartments that don’t make them good investments.

1. Land Appreciates over time and buildings depreciate.

If you are investing in property for capital growth, you need to invest in properties that have a strong land value component. OTP apartments tend to have a land value component of less than 10% of its overall value. So 90% of your property is depreciating.

          2. OTP Apartments have no proven track record of performance. With an established property you can see what it has been bought and sold for over time. Therefore you can assess its growth rate and current value.

In addition, you cannot inspect the property before you buy it, nor can you assess the size, lighting and so on.

Also, the builders have the ability to change or substitute certain items and features so you may end up with something that you didn’t pay for and obtaining finance may be an issue, if the bank values the property as less than the purchase price.

Also, Townhouses typically do not make good investments as they tend to be located on impaired locations, like a main road. The reason for this is because developers can only construct townhouses for a profit, if the cost of the land doesn’t exceed a certain value.

Townhouses also lack scarcity and a sales/growth history and the architectural style tends to date.

Newly constructed houses are often in areas where land is abundant and again, there is no historic growth performance.

Older style apartments however, can be classified as investment grade if they meet the following 3 types of criteria:

• More than 50% of its value is land
• They have strong scarcity elements
• They have proven performance

In summary, new apartments aren’t constructed as well as the older style apartments and will lose their sheen as time goes by and in the long run, the investment grade apartments will outperform them.