Increasingly, property buyers are attracted to the idea of apartment living.
No garden upkeep, building maintenance is taken care of and if you want to get away – just lock the door and go. Generally speaking, apartments also tend to be cheaper than houses and it can be easier to get a property foothold in a better area.
But do you know what you are actually buying?
While the names vary a bit from state to state, an apartment building is generally owned by an Owners’ Corporation (OC) or Body Corporate. The owner of each unit has an interest in the OC and therefore has to pay their share of the costs of operating and maintaining the building. Each unit owner pays levies (usually quarterly) to the OC’s Administrative and Capital Works funds designed to cover these costs.
Administrative Fund Levy
Covers costs associated with day-to-day running of the building, such as strata management fee, insurance, cleaning, gardening and so on.
Capital Works Fund Levy
Its purpose is to provide a savings fund for less regular building maintenance costs, such as repainting or scheduled maintenance of lifts.
Capital Works Fund Forecast
Various state laws require OCs to have a Capital Works Fund forecast prepared by a quantity surveyor so the finances for the building can be properly planned. However, there is no requirement for the owners’ corporation to actually set the Capital Works Fund levies in line with the forecast. Many buildings choose not to follow the recommendations and, when the time comes, aren’t ready to fund large expenditure items.
This is where things can get interesting. Because if there aren’t sufficient funds available to pay for a large and necessary maintenance expense, each unit owner will have to fund their share through a Special Levy raised in connection with a specific issue. For some large expenses, owners corporations sometimes seek third party financing but that imposes additional costs and isn’t always straightforward. The terms of third party funding also usually require the OC to fund the repayment of the loan through special levies.
Why is all this important?
Because if you happen to buy at the wrong time, you might be up for a significant cost you haven’t planned for. We’ve seen examples where the special levy has been up to 50,000 per unit. This could cripple many unsuspecting buyers.
Many apartment owners take the view they shouldn’t have to pay for building maintenance that might occur after they have sold their unit. But it’s a bit like saying ‘I won’t bother painting my house before I sell it because the new owner will get the benefit’.
These same owners often also think they should get top dollar for their unit, even though their building is run down and there isn’t any money in the Capital Works Fund to do any maintenance.
This is why you must check out the financial position of the building and the history of past expenditure. It will give you a better feel for the future costs that you might have to pay. Without this information you might be overpaying for the unit or buying into a degrading building which will need significant financial investment in the future to bring it back up to the standard.
But you’d be surprised how many people sign up to buy an apartment without properly checking it out. Or worse, they don’t even know their obligations as a unit owner.
How do I find out?
The best way to understand more about the building you like is to examine the books of the Body Corporate. You can do this yourself by making an appointment with the strata manager to visit their office and inspect the records. There is a fee payable to the strata manager in most cases. You will also need to organise an authority from the owner that will grant you access to these records.
In some states some records and/or reports about the records are required to be provided as part of the contract for sale. However, in most cases the information provided is not complete and may be out of date.
If you are not keen on inspecting the records yourself and the information (if any) provided in the contract about the building is not sufficient, you should consider arranging a strata records inspection through an inspection company that carries out such inspections and prepares reports every day. Knowing where to look, and what to look for, can save a lot of time and reduce the chance of overlooking important information.
Get it inspected!
At EYEON Property Inspections, we can help you get a report done and will answer any questions about it. We promise you quality information and great follow up support.
Arranging an inspection is easy.Request an Inspection Now
To get more buying tips, check out our comprehensive Buyers Guide.
The EYEON Property Inspections Team
At EYEON Property Inspections, we help you buy and sell with more confidence.