Personal Finance

Are high-rises also high cost?

Meera Siva | Updated on September 22, 2019 Published on September 22, 2019

Apartments in multi-storeyed buildings may not be really cost-effective for owners

A flat on the 30th floor is a tempting one for home owners — you get great views, and no dust. It is intuitive to think that high-rise construction could mean lower cost in metros where land prices are exorbitantly high. And higher density of living has its benefits in urban settings — you can save on transportation costs and time, and hence cut pollution.

But there are many flip sides to going vertical and you must consider them when evaluating different projects.

Construction cost

One issue with building high is the relatively higher cost of construction that gets passed on to you. Price premiums arise due to three main factors — material and labour costs, efficiency costs and finance costs.

Unlike single-storeyed or even medium-rise buildings, special skills are needed to design and construct buildings over 20 storeys tall. You also need to sort out logistics and meet special safety requirements, which adds a premium. For instance, moving material and workers up the site can be a challenge. Also, transporting concrete to heights needs special techniques. Wind is another factor that is often over-looked and can escalate expenses. Winds are stronger at high altitudes, and this can add to difficulties in managing the workforce and material. And the design of the structure must also account for wind loads, bumping up structural cost as the height increases.

Other costs such as those for service installations can also be more. Data from a research paper published in the UK (‘The revival of high-rise living in the UK and issues of cost and revenue in relation to height) note that the cost of mechanical and electrical engineering service installations increases disproportionately above around 100 metres. Costs for other essentials such as garbage collection and fire safety equipment provisions are also higher. Lifts may be another big-ticket item that can add to the price tag — you may require faster ones and many more of them (as there will be more users).

Another facet of high cost comes from the need for skilled labour. There is often only a limited pool of contractors and workers who can build tall towers; so, they tend to be more expensive than the workforce that can tackle regular construction.

Other costs

Your costs also increase due to the design limitations of high- rises. Efficiency, as measured by the ratio of net to gross area, is lower as more space needs to be allotted for wider stairways, lifts and other vertical installations. Research data, based on expert inputs, show that the ratio is 80-85 per cent for buildings less than 20 storeys tall, but drops to 70 per cent when the number of floors increases.

Finance costs are also higher due to a few reasons. One, the planning and approval process is longer due to the need to assess the impact of towers on the skyline as well as the surrounding neighbourhood. The construction period can also be stretched out. For example, crane availability may limit certain operations; concrete curing equipment and the time it takes may add to cost and time. All these factors end up adding to the financing cost as the project takes longer to complete and the developer must invest early for land, approvals and getting the construction started.

A developer also faces higher risks, which increases the return expectations. For example, when the construction is spread horizontally over a larger area, investments can be phased, and changes can be made easily. High-rise buildings, on the contrary, do not allow interrupting the construction without significant costs or to finish only a part of the project if there are unforeseen circumstances. Data from research done in London showed that the return expectations of property developers for buildings with 40-50 storeys was twice that of medium-rise ones (30 per cent vs 15 per cent).

Other factors

Besides paying a higher price, you may also end up footing a bigger monthly maintenance bill. For instance, lift maintenance costs increase with the number of lifts. Power costs also increase with their number and usage. The lifts would also require a more robust power back-up to ensure it is operational. Painting, window and façade cleaning costs are also higher for high-rises due to the difficulties involved in executing the work.

Your power costs could also be steep. For instance, a measured phenomenon in taller concrete buildings is urban heat island effect, caused by the greater heat absorbency of concrete. Data measured in Hong Kong showed that temperatures at night in areas of high-rises were 6-7 degrees higher than the surrounding rural areas. This would translate to higher cooling cost for residents. So, while land cost may make high-rises an attractive choice in a few locations in some cities, in most other cases, you must weigh your options before buying.

The writer is an independent financial consultant

Published on September 22, 2019
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