Current Market Insights
The Current Market Insights Podcast is brought to you by Harris Partners Real Estate.
Understanding the property market can be a challenging thing, with highs and lows, twists and turns. The media and agents tend to spread the news they want you to hear, with the advice they want you to follow.
Current Market Insights is an unbiased look into what is happening, what tips you can use to buy, sell, or rent, and that you wont find anywhere else.
Current Market Insights
Episode 78: Strata Drama - How to avoid costly mistakes
Hosts Ciaran O'Brien and Peter O'Malley dive into the impact of strata levies on property purchases, sharing personal experiences and industry insights on managing these shared costs wisely.
We explore the rising costs of strata fees—particularly due to insurance—why reviewing strata reports is essential for buyers, and the importance of trusted advisors in the purchasing process. From inspecting amenities firsthand to understanding strata dynamics, this episode equips buyers with the tools to make informed decisions in the apartment market.
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
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Speaker 2:Welcome to the Current Market Insights podcast brought to you by Harris Partners Real Estate. Each episode we chat with real estate author and industry leader, peter O'Malley, to discuss the current property market conditions and provide insights to assist you on your property journey.
Speaker 3:Hello and welcome to another edition of Current Market Insights. I'm your host, kieran O'Brien, and with me is my good friend, mr Peter O'Malley. Peter hello, kieran, great to be with you. Peter, it is my favourite day of the week to come back and see you for the podcast.
Speaker 1:Oh, thank you.
Speaker 3:Oh, you are most welcome this week, peter. I really want to talk about an issue that's actually in some ways very personal to me, which is strata levies. Now, you might think that's weird to find strata levies a personal issue, but as someone who lives in a strata building, I hate levies with a passion. I must admit. I get what they're for, but I don't like them. I don't like. I get what they're for, but I don't like them. I don't like when I get one. And one of the things that always, you know, I always think about when looking at my own levies or looking at other buildings and, you know, trying to work out the levies and how they correlate to the building itself is, you know, what can people do to, I guess, get a better understanding of, firstly, how the levies contribute to the building that they're looking at and whether or not the amount that is being levied seems both reasonable and sufficient to ensure that the building is going to be looked after the way they want.
Speaker 1:Kieran, there's some really interesting things happening in this space, some of it good, some of it not.
Speaker 1:And we touched on this time last year, the beginning of 2024, what was going on with insurance premiums in the strata sector. Major players were backing out of strata insurance because they were being used as maintenance companies by strata managers and they were just pushing, you know, superficial things onto the insurer and that ultimately drives premiums up or, in some cases, drove insurance players right out of the market. So the reason I say it's interesting is because we sold lots of apartments, say, during 2020, 2021, and people have come back to us um, uh, three, four years down the track and said, hey, we've enjoyed the apartment you've sold us. Can you sell it for us? And as part of our compliance id check, we need a copy of the council water strata rates, and I just noticed late last year onwards that I I was asking people who were listing apartments for sale when they sent me their strata rates notice that it had doubled since we'd sold them the property only three or four years ago.
Speaker 3:Yeah.
Speaker 1:Yeah, not an unusual story, yeah. And then I went into property management, who manage literally hundreds of apartments, and said am I just sort of having a run here of four or five clients having their strata rates nearly double in three to four years, or is this broad based?
Speaker 3:and the answer came back that's broad based at a time also when you know interest rates are up, etc. Etc. I mean, that's just a double whammy for a lot of people, right we?
Speaker 1:knew inflation was up and it was running at 10, but we're talking yeah, they've doubled in three to four years. They're comfortably outstripped inflation and it was like that's a real concern. What's driving that? And there's a few things that are sinister that's driving that. There are a few unfortunate things, like the insurance play we just discussed, and then some of it makes you know a lot of sense.
Speaker 3:Okay, so if I'm you know, a lot of sense, okay.
Speaker 3:So if I'm you know, let's use this, I guess, as an opportunity to to try and work through an example of this. If I'm looking at apartment building and, uh, let's say, I go through the, I get a strata report, or there's one available and I go through agm minutes for the last, however long, you know x amount of years, and it showcases that levies have been increasing steadily over time, is it reasonable to to look through something like that and say to yourself, okay, well, there's a pretty clear pathway of how we've gotten to this point of increased levees and there's, you know, clearly, utilization within the building, maintenance or whatever it may be. That's, that's justified this. How do I then compare that, say, with another building I'm looking at and the levees, you know, maybe don't have a great justification? Are there ways that I can figure out how that money is being utilised efficiently? To make sure that I'm not buying into a lemon necessarily, particularly if levies are increasing, but it seems like maybe the building's not being upheld.
Speaker 1:Yeah, so if it's got higher strata levies than you anticipated, what you need to do is go on a path of discovery where is this money going and why is it going in? You know, why is it going to certain areas. So there is not one answer to the whole strata levy. Um question, kieran. So with some buildings um, you know, like an art deco building, for example, built in the 30s it's probably a compliance issue. It's not fire rated, the windows on the top floors open too much and are a safety risk and don't meet the state government's new regulations.
Speaker 1:As far as windows, and when you start playing with character buildings, as you know, taking windows out and replacing them with more modern ones, they might be still aesthetically pleasing for the building, but you've still got to take the old wood ones out and replace them with something that meets current standards. That's very, very expensive. Yeah, so that might be what happens with an Art Deco building, for example. Let's go now to something that was built in 2012 and, unfortunately for the owners in there, the cladding was flammable. Yeah, and by law, that's got to come off. Now the state government are providing strata plans and there's 446 buildings in new south wales that had flammable cladding that needed to be replaced and that was announced at the start of covid, and then obviously there was a moratorium on that because of covid, but that's happening in earnest now yeah now, the state government gave those strata plans 10-year interest-free loans to trade their way out of the flammable cladding issue.
Speaker 1:But clearly, since the announcement of these 446 strata plans that need to replace their flammable cladding, we've had this inflationary outbreak in the economy, supply chain issues, et cetera, et cetera. So, yeah, they've got an interest-free loan, but they're still paying more for the product. Unfortunately, the state government allowed builders to self-regulate, self-police for for a long, a long time and that, as we know, through mascot towers, opal tower and many other micro strata plans around Sydney that have massive issues. They need to be. The issues that arose there due to poor build quality need to be addressed, whether it's water ingress, et cetera, et cetera. So the New South Wales Building Commissioner was introduced in 2023 and builders who had defects in their buildings and didn't fix them were liable for criminal charges. So something built more recently is probably a slightly safer bet in terms of build quality, but sadly, there was a 15-year period there where not everything that was built was substandard, but a lot of the stuff that was built was substandard and it's not handling well now, 15 years later.
Speaker 3:There's certainly. You're right. There's a few examples that have made the media and are quite popular, mascot and Opal being probably the most prominent ones in recent memory. Anyway, one of the things that a lot of people said to me when my wife and I were buying was, when you're looking in an apartment, don't buy if the strata's too high, because it means they're desperate for money or they're not looking after it properly. And, inversely, don't buy if the strata is too low, because you know they're obviously not raising enough money and and the building's not adequately looked after.
Speaker 3:Now I said just a moment ago that you know, obviously you can go through a strata report, you can get access to minutes and you can look through financial records of the body corporate and try and get some sense of where the money is going.
Speaker 3:But I want to ask the question for you and this is particularly relevant, I think, for a lot of listeners who may not be in metropolitan Sydney but one of the things that that you do, for example, with a lot of your clients, is you, you front load campaigns with strata reports, right? So you, you know you make it easy for buyers to get access to the information and you know make informed decisions about buying a property. It makes the whole thing a lot easier and your vendors obviously work with you on that. That seems to not be all that common across other sectors, you know, maybe in other parts of Sydney and certainly in maybe less populous areas. So in those kinds of scenarios, what's the best approach for buyers who really want to understand the dynamics of the body corporate that they're looking at, to try and get a really good sense? You know, how do they get access to that information easily? Is a strata inspector their only avenue, or there are there other ways that they can actually have a look?
Speaker 1:uh, look, I think you need to walk the building and if you're not, if you're out of your area of expertise or comfort, you need an advisor. Now some people, when they need an advisor, go and find a narc or a pessimist to just basically give them the green light to blow the sale up. That is not what an advisor is. Yeah, an advisor gives you reasoned assessment of the quality of the building that they're looking at, the prospects of the property's performance in the market as a piece of real estate, an assessment, unemotionally and pragmatically, on what to expect from the strata, having read the strata report. So you need a multitude of criteria that you're assessing before deciding to buy an apartment or a townhouse.
Speaker 1:Townhouses don't tend to come with the issues that the apartments are. We've said this before on the podcast. You must walk the building, get access to all of the common areas. The amount of times we sell an apartment, for example, kieran, and we'll say do you want to look at the gym and the lift and the pool and the garage and all those, the rooftop terrace, and people say no, no, I can see it here on your brochure. I know it exists.
Speaker 3:Madness yeah.
Speaker 1:To spend $1.5, $1.6 million, whatever it might be, and not say to the agent I want to see the car space, I don't want to see the car space on a strata plan, I don't want to see it on the back of a brochure on a floor plan. I want to walk to the car space and look at it and on the way I'm going to get a feel for the building. And it's the same with pools, gyms, lifts, the whole anything. Because when you are paying your strata rates, you're contributing and you're a stakeholder in all of that. So I see it go both ways.
Speaker 1:Sometimes I see buyers not understand how reasonable the strata levies are and how reasonable they are to be in a building that's as well run as what this particular one might be, for example, and the amenities that are on offer. And then there's other times where buyers are flippant about buying into a substandard building and, as I just described, not even being prepared to go down and look at the garage or the common areas. They're flippant and they're spending such significant amounts of money. So you do need to be very, very wary when you're buying strata.
Speaker 1:Now I'm not saying don't buy strata, I'm just saying that you need to set a criteria, both the strata report and inspection of the property, a walk of the property. You need to be able to anticipate expenditure, just as we've recommended that home buyers should speak to the neighbors before buying an apartment. You will find out what's going on in a strata if you speak to the current residents, just knock on a few doors, buzz a few buzzers and say I'm thinking of buying in here. How do you find it? Because what you won't see on a strata report necessarily is the noise that's coming through some of the walls or the floors, or it might be completely harmonious and everybody really enjoys living there, but that's not articulated in the strata report.
Speaker 3:Oh look, certainly you know you don't smell the neighbours cooking or you know, hear the 2am workers coming home every night. In the Strata report, as you say and it does always baffle me that people will make the largest financial decision of their lives quite often and many, many Strata purchasers are first home buyers, you know young couples into the market et cetera, because it is a more attractive price point. And they don't do the walk around or they don't actually do their due diligence on the building itself, they don't investigate the local community, they don't go back. I think, if you know, remembering back when I purchased, one of the things you said to me was go and look at the building, do it all, but go back again at night on a different day. That's right on a different day.
Speaker 2:That's right, go.
Speaker 3:and see what it's like at 6pm. Go and see it at 7pm. Is it really noisy? Are all the kids screaming? You know, late in the evening there's where I live, dogs bark, dogs barking. Exactly. You know where I live. There's a park across the road and one of the things we did, my wife and I, we went back and we sat in the. It certainly, you know, doesn't even you know come close to how much we love the place overall and how good the community is.
Speaker 1:Yep, absolutely. You know, like we sell properties, as I say, where people don't even go and look at the pool and the gym, and then they're complaining about the Strata levy. It's just like go and look at the pool and the gym.
Speaker 3:Oh, and for a lot of those buildings the bulk of the cost of the strata levies is the maintenance of the amenities, right, and the elevator. Yeah, yeah, look, it's certainly a trap, and I think the beauty of this episode for me really is that strata can be a bit of a trap, particularly if you are new to property. It can seem like, hey, that apartment's great, it's only $500,000. And a lot of people won't factor in you know the point that it costs X amount extra per year for the levies alone, and then you've got to worry about other things, and then there's special levies come, and then there's EGMs. You know there are all these other things that come into play. And if it's, you know, like you always say in any property transaction, if it seems too good to be true, it probably is. So you do have to take caution to make sure you're properly analysing it right.
Speaker 1:Yeah, look it is. And as a real estate agent in the inner west, I can drive around the inner west and I can say to myself personally, I'd buy in that one, I'd buy in there, I'd buy in that building at the right price. I wouldn't touch that one Because I've read all the strata reports, I've walked in and around the buildings over 25 years. But I come to the same challenge that consumers come to whenever a client asks for my opinion on an apartment that's out of our service area. And the reason I was keen to take this issue on tonight is that during the week a client asked me to help them buy a property in Parramatta. And I'm looking at all of these apartments and the apartments are all presented for sale and they're photographed professionally and they're touched up and they're styled. So they all looked good, yeah. But then I started looking at the facade and I started circling the photo and saying, look, that's water ingress there, that calcification there. You need to be careful. That's a sign that the water's getting in behind the paint, you know, and there's black mould forming on the externals. It can be superficial or it can be significant. You wouldn't know. I'd need to do further investigations.
Speaker 1:I was only relying you know, relying on a property brochure, but pointing out to the client as you walk around these are the sorts of things that you need to be looking at. And it's like, well, you know, can you give me your advice? And it's like no, I'm going to put you in touch with an agent that I know in Parramatta because I know from the inner west, as I just said, that I can drive around and say I'd buy in that one, I'd buy in that one, I'd buy in this building at the right price and I wouldn't touch that building because it's just local knowledge and feel. But that's 25 years of looking at strata plans and I wouldn't dare try and tell a client to buy or not to buy in a strata plan outside of our service area when I don't know how that strata functions.
Speaker 1:And it's immensely confusing this issue for the consumer because you can have a row of apartments, apartment buildings in a suburb and when you get the sales history of the street, there's a 20 to 30 percent variance in some cases. But from one building to the next, why is it a 20 to 30 percent variance in the one street for what seems to be like a similar product and it comes down to the build quality, the running of the strata, the strata levies, how well it's funded, etc. Etc. And on and on it goes. So it's a very, very confusing issue and I've sold properties for many people in recent years that have said I'm selling my house and I'm going to buy an apartment, and then they tottle off into the property market to try and buy an apartment. And then they toddle off into the property market to try and buy an apartment and it is so daunting and so conflicting they just go and rent.
Speaker 3:Yeah.
Speaker 1:Because they just cannot put their life savings and I applaud them for not taking a gamble they just cannot just dump their life savings in a strata plan and hope it works out, given the horror stories that are out there. You talk about press, and Opal towers was a couple of christmases ago now, and then mascot towers followed shortly thereafter. But late last year there was a lot of press about people losing hundreds and hundreds of thousands of dollars buying into dodgy strata plans in sydney and melbourne, and it's because the building industry was allowed to self-regulate and now the poor old owners, after the building warranties have worn off, are wearing the financial cost of it.
Speaker 3:It's horrible oh look, it certainly is, and we all know that nothing bad's ever come from self-regulation. Uh, really good topic, peter. I think for me one of the key takeaways and you summarized it perfectly by saying in the inner west you know the buildings beautifully and in Parramatta your colleague knows the buildings beautifully, etc. It really does highlight the importance of having a trusted advisor who is not a pessimist, as you say, but is someone who's realistic, informed and educated enough to independently look at a property or a strata or a building, a facade, a for concrete cats or whatever it may be, and give you a well-reasoned argument as to why this is or is not a concern and something you need to look at when potentially purchasing. So I think, alongside all the research that we always recommend, that trusted advisor is a really important part.
Speaker 1:Yeah, look, and what I did say I'll go one step further on the trusted advisor bit here and what I said to my client we'll be selling their property in the inner west. I said I'm putting you in touch with arthur and I said I'll just tell you straight now so you don't annoy arthur and drive him away.
Speaker 1:Just offer to pay him yeah you don't have to pay him a large sum of money. He's a good guy, but don't. Don't pay him nothing because you are about to put, when you sell this property and buy one there. You're about to put a large chunk of your personal wealth into a property and you're better off paying someone a few thousand dollars to give you advice and guidance as you go through your journey. It'll be the best money you've ever spent where. If you're trying to milk the local realtors for all of their you know market intel without paying them well, they're clearly going to sidestep you and then you're going to be back to square one, which is trying to work it all out by yourself instead of having professional guidance.
Speaker 3:No, really really good insights, peter, and, as always, there's some useful tips, I think, in this episode for anyone who is thinking about buying into Strata in the future. Thanks, as always, for coming in and chatting with us on the podcast. Thanks, kieran, and thanks to everyone for listening to Current Market Insights.
Speaker 2:We look forward to speaking with you next time. Thanks for joining us on the Current Market Insights podcast brought to you by Harris Partners Real Estate, the podcast providing real estate insights you won't find anywhere else.
