Don’t buy a crumbling, flammable high rise slum now!

Via the ABC comes Philip Gall, chair of the Owners Corporation Network.

I write this piece as one of the lucky apartment owners.

Lucky not because I managed to break into the apartment market, but because I survived it financially intact.

In 2008 I purchased a two-bedroom apartment in a six-level complex near a good rail service not too far from the city. The development had won environmental awards, it shared a site with local council facilities, and was almost six years old. The building inspection report produced no major issues.

What could go wrong?

Within two years we were in full pursuit of a home owner warranty insurance claim to fund about $3 million worth of defect repairs. The external render was falling off, and balconies and bathrooms were leaking into apartments. The builder and developer had evaporated, leaving the insurer as the last resort.

The claim was robustly defended by the insurance company and failure would see apartment owners liable, on average, for around $50,000 each. Fortunately, by late 2014 we had agreed on a settlement. The long, disruptive repairs process was eventually completed in late 2016 and in mid-2017 we sold out.

I can’t “name names” because of the settlement. And this is part of the problem.

All too often, legal action against a builder, developer or insurer ends with a settlement which involves a non-disclosure agreement.

Plus, what apartment owner is going to go public and undermine the value of the building they part own?

Before you buy, do this

The predicament facing Opal Tower and Mascot Towers apartment owners is only the visible tip of a very big iceberg.

So my advice to my kids today, and anyone who’ll listen, is this: do not buy a new apartment, especially if it is over three stories high.

Think about older, simpler, three-level walk-up options.

In most states, home warranty insurance cover is no longer required (or even available) for new apartments over three levels.

Alternatives vary by state, but in NSW, there is instead a 2 per cent bond scheme to cover defects identified in the first two years of a new building. There are also statutory warranties provided by the builder for all defects identified in the first two years, and “major” defects found within the first six years.

The situation facing many others is worse still. In addition to situations like Opal Towers where residents have seen the value of their apartments collapse, flammable cladding rectification is costing some apartment owners closer to $100,000 to repair.

My second piece of advice is to inspect the whole building, not just the apartment you’re interested in.

Worn carpets, flaky paint, water stains and cracks are tell-tale signs of poor management. Talk to residents, particularly renters who don’t have a stake in protecting the value of the building. Expert help is good but choose your help wisely.

Always inspect the strata records very carefully before committing to a purchase contract. If there is more than token resistance to this then walk away.

Those records should include all expert reports prepared for the strata scheme since its inception, including the initial defect inspection reports, all the financial data and the minutes of the required general meetings and strata committee meetings.

Reviewing this with the assistance of an experienced eye can tell you a lot about the building. Spending on preventative maintenance is good. A solid set of provisions on the capital fund to cover future repairs and asset replacements is good too.

How we got here

This mess has been with us now for many years as ever bigger apartment buildings have been pumped out to meet demand in rapidly growing cities. Quantity has trumped quality and the needs of the consumer.

The poor companies are low-cost, low-standard outfits. The good companies have to compete with this and it tends to be a race to the bottom. As one builder told me candidly, “if they buy rubbish, we will build rubbish”.

Governments appear to have been looking the other way, too. Review after review has raised issues with the regulation of the industry.

In NSW, the recommendations of the Lambert Review completed in late 2015 have been largely left on the shelf.

It took 12 months, the Opal Tower fiasco and a state election to get action in response to the Shergold and Weir Report prepared for the building ministers nationally.

Despite a set of commitments by the NSW Government to act on this before the March state election, almost 100 days have passed since without any draft legislation coming forward.

And this is far from a problem for NSW only.

A crisis of confidence will affect us all

Confidence in new apartment offerings has been shattered at the very time that builders and developers are facing a downturn. While I feel for the good companies, and I am sure there are some, the industry’s neglect of the end consumer will probably hurt them all.

The failure of apartment living to work is a disaster for the wider community too. How do we meet the housing needs of the future if people shy away from apartment living? What are the economic consequences of a collapse in the demand for new apartments?

Effective public policy initiatives, including effective consumer protection for apartment owners, are economic imperatives.

In the meantime, if you are tempted to buy a new apartment over three levels, don’t.

Comments

  1. Ronin8317MEMBER

    It’s not ‘if they buy rubbish, we’ll build rubbish’. Instead, it’s ‘if they buy a 1 million dollar+ 2 bedroom unit off-the-plan, the law allow us to build rubbish, thanks to self-certification”.

    Mascot Tower, when it was sold back then, was not cheap.

    • These apartments are not designed for living in – they are for investing in!
      Mainland Chinese know this – this is why when they buy them they keep them empty.

      • C.M.BurnsMEMBER

        it’s not falling apart due to wear and tear; it’s falling apart due to very poor materials and worksmanship.

        So whether you keep it empty or not, it’s still a time-bomb that’s more than likely going to blow up and crash in value. So keeping it empty in this context is even more stupid as you’re forgoing a revenue stream on a fixed-life asset

      • @Burns i think the point is more that money lives there and it was never a concern about building quality, only that it was an offshore asset to park money until time to flip and make more money. Of course that might be harder now. So like the stock market where something can fall to $0 value, so too can apartments apparently. 😀 That’s what happens when you turn the housing market into a stock market.

      • @Jack C they’re not empty champ, they’re full of overseas students who are crammed into in contravention of local zoning laws, 12 to an apartment in some cases with tents set up on balconies.

  2. “Don’t buy a crumbling, flammable high rise slum now!” – ha?? So when is the time to buy crumbling, flammable high rise slum?
    I think this should read – Don’t buy a crumbling, flammable high rise slum ever!

  3. And yet for 3 years MB has been supportive of the ALP’s NG policy which was designed to encourage more people to invest in this crap.

    • I think that’s unfair, yes it’s crap and new builds are crap but it’s got nothing to do with negative gearing reform and everything to do with de-regulation.

      • My Dad was a builder and his advice was to never ever buy a house built during boom times.
        This advice had absolutely nothing to do with sector regulation, it’s just reality that crap gets built in boom times.
        In boom times everyone that can swing a hammer, lay concrete or put in pipes calls themselves a Tradie, buys a ute and joins in the game…they don’t know what they’re doing and they don’t care. The foreman knows it’s all crap but everyone is screaming for the project to be completed (in any state) so that they can all make a motza.
        That’s just the reality of Boom time building. As the boom times fade the least capable Tradies find that they’re no longer employed and the pressure is off to meet insane deadlines because the quick profits aren’t available anyway. In non boom times Good tradies stay in the industry because they do good work, as a result the whole job gets done properly….Again this outcome has nothing to do with regulation.
        Frankly I’m amazed how well this advice fits my lived experience buying houses in four vastly different countries with completely different laws and building regulations / enforcement methods

      • @Fisho – Agree this is why I like the stuff built in the 1930s. Art Deco era etc.. Also some of the 60s stuff is good. Maybe some of the mid to late 80s, but the last 20 years is a disaster.

      • “In boom times everyone that can swing a hammer, lay concrete or put in pipes calls themselves a Tradie, buys a ute and joins in the game.”
        Which begs the question, where is the regulation and compliance in the trades?

    • BubbleyMEMBER

      And the LNP has not only been supporting people buying this crap, it’s been actively encouraging builders to make it.

      Cherry picking Labor and MBiz is disingenuous of you Jason. Neither of these groups is in the political position to do anything about it and the LNP are.

  4. “Think about older, simpler, three-level walk-up options.”

    I hope these don’t boom before I can “snap one up” to live in a place I own, but they probably will. Australia is giving me the sh!ts.

    • C.M.BurnsMEMBER

      but maybe not to the younger generation who haven’t been struck down by the brainbug yet

  5. So we’ve got the national broadcaster putting out long pieces advising people not to buy in high rise towers less than 10 years old, with the advice backed up by solid evidence of the financial and personal pain that can ensue if you don’t follow that advice.

    I suspect that apartment prices are going to follow an interesting trajectory over the next couple of years, and the greedy and corrupt developers and builders will have brought it all on themselves. And I hope the Chinese and other speculators who bought all those apartments lose every penny they spent.

    And…

    How do we meet the housing needs of the future if people shy away from apartment living

    Easy. Change the housing needs of the future by importing less people so that we don’t need the stupid, ugly, apartments that no normal person wants to live in anyway.

    • robert2013MEMBER

      Build terraces as they did in the UK before WW2. Everyone gets a small garden. No strata fees. Masses of people housed in a high density way.

      • Don’t worry about the UK – look to any victorian suburb in Australia. Terraces are still very popular. I live in one in Paddington, fantastic. But you see them everywhere. Saw a row of beautiful terraces in Orange and even a row of terraces from the 1800s that had seen much better times in Lithgow.

        Strangely, if you get a UK paper like the FT – have a look at the real estate section. New builds in London actually mimic the victorian aesthetic, whereas our new build “townhouses” look all aluminium and rendered shit that dates immediately. I don’t know why developers don’t try to recreate the “look” of a victorian terrace. it can be done. There was a vacant lot at the end of good hope street in Paddo and the builder built a brand new terrace to match the row. So the facade matches and looks fabulous but inside it is a brand new house.

      • The crapness of the construction is just a symptom. The problem that induces the symptom is that huge numbers of immigrants require housing that doesn’t exist. That need for additional housing in short order must be met, and that then provides an opportunity for Dodgy Brothers to profit by building expensive, pre-crumbled slums with built-in wicks that are ready to light..

        We wouldn’t need tens of thousands of sh1tty dogboxes without all of the immigrants.

      • BubbleyMEMBER

        LS, as always, we are in utter agreement.

        The frustrating part is that our politicians are so corrupt (there can be no other reason for their behaviour) that they are prepared to throw at least 2 generations under the bus for their own personal gain.
        (I’m still steaming about that poli with 9 investment properties and a personal residence who thinks tiny homes/trailers are a good idea for our youth)

  6. My mother was stung 50k for something similar in her unit, the whole block had water drainage issues, the repair work took 2 years and everyone was stung hard for the bill. The fix that was done wasn’t great at all, it looked very sloppy, she has since sold and moved to a villa, where she has much more visibility over the buildings quality and issues.

    All of these big block units are a ticking time bomb and the insurance isn’t worth the paper it’s written on.

    • darklydrawlMEMBER

      Yeah, I hate to think of the ongoing strata costs for some of the public facilities. The lifts, the roof pool, the outdoor garden and gym. You are looking at potentially hundreds (if not thousands) per month in fees to keep those thing running and servicable. Urrrgh. And that is assuming the unlikely scenario that there are no ‘surprises’ with build quality that needs expensive remediation.

    • darklydrawlMEMBER

      And those older 2/3 story apartments that are common in parts of Melbourne. Some of those old deco places are lovely – not to mention rock solid.

    • Except the total wealth and equity lost via high rise could more than offset the extra demand for low rise.

  7. Royal Commission into City Council planning decisions and State Govt oversight of regulations NOW !

    Wealthy landholders and developers have been in cahoots with Councils and State Govt bodies for decades to ensure standards could be systematically lowered with one overarching objective: Increasing the value of land !!

  8. The buck stops with a federal government. It stepped on the population accelerator with no tangible plan to build adequate infrastructure and to maintain an Australian standard of living. Once we restricted high rise construction as an undesirable social outcome for good reason. Now our elites have set a social time bomb at the heart of many of our cities.

    High rise slums are a monument to Big Australia and the neo-liberal ideology allowed to work hand in hand with deregulation (“cutting red tape”) that dropped piranha into the gold fish bowl.

    Those behind the Dog Box industry took a model of post WW2 housing first progressed en masse by the Soviet Union, East Germany and UK in war devastated Europe – the high rise. By artificially creating population demand our corrupt government was able to do the bidding of developers, finance organisations and industry lobbyists who infiltrated and captured all levels of governance.

    Harvey Norman and Harry Oskar Triguboff and other great Australian humanitarians just stepped up to make a killing through concrete and consumer goods.

    Yet people who have bought into crumbling high rise slums are not just financial victims. The psychological and physical wellbeing of residents will suffer in the decades to come as more comes to light about the microbiological petri dishes that concrete dog boxes produce that has been well known for three decades at least:

    https://ajph.aphapublications.org/doi/pdfplus/10.2105/AJPH.92.5.758

    As for the psychological costs; a very big experiment went on in the Soviet Union and the costs are clear. No sane person can argue that high rise living is desirable. Only the pathetically greedy and corrupt would even try – an these are the people allowed to set Australian housing policy:

    https://theconversation.com/its-time-to-recognise-how-harmful-high-rise-living-can-be-for-residents-87209

    Over the next decades cost will be felt by our society generally. The Australian government has created a perfect storm through mass immigration, deregulation and bad planning at a time where automation will begin to produce a long-term unemployed with no access to increasingly expensive transport. I wonder where they will live once the value of our centrally located archipelago of dog boxes declines and the slum lords enter them onto their books? Add the tensions created by jamming people into cities and a criminogenic bonfire of “diversity” is a very real possibility.

    • TailorTrashMEMBER

      Indeed ! The last 30 years will have to go down as one of the all time great mismanagement of a country in history ….. the costs are yet to come …they will be
      most unpleasant .

    • An economic downturn and or mass automation will be devasting to the low-skilled people we have imported en masse.

      These people will end up on welfare or very low-paid work, and the only places they will be able to live in will be these dog-boxes, including the ones once promoted as being ‘luxury’.

  9. There are no issues. The true purchase and rental values of new build units is being price discovered by the market. 100k to buy a cheaply built unit won’t be bad value. You’ll be able to rent one for 100 dollarpounds per week.

    • BubbleyMEMBER

      which is all fun as you drink your coffee on the balcony and it drops off the edge of the building.

      People have the right to purchase a safe building – not get tossed out into the street with no where to go and a massive mortgage to pay on an unsafe apartment.

      We are not talking about a few cracked tiles here. We talking about building that are structurally unsound and in danger of collapse.

    • BubbleyMEMBER

      I keep thinking Harry and Gotti will die of old age soon but I’m also fearful of what moral free monster will replace them.

  10. BubbleyMEMBER

    The really screwed up part is how this is going to distort the property market even more.

    The prices for houses, townhouses and duplexes are going to become utterly outrageous because no one is going to trust apartments. This will leave towers without any owner occupied apartments and more likely to create the vertical slums we have all been concerned about.

    It’s just (insert your profanity of choice)

    • Meh. Buy a house in an area with no high density zoning. Despite what you’re reading, the prices of these properties in areas with ready access to good jobs are still rising (outside of Sydney and Melbourne, which no-one cares about anyway).

      • BubbleyMEMBER

        I think you’re missing the point.
        This is the largest purchase most people make in their lives. They are exchanging years of their lives in exchange for money to pay for these apartments.

        They have the absolute right that they should be habitable and not at risk of collapse.

        As for your “buy a house in an area with no high density zoning” comment, that’s exactly what you and EVERYONE else is going to try and do. This is where the market will start to massively distort itself, which was the whole point of my initial comment.

  11. Major Beauner

    Australia screwing it’s own arse till it bleeds is very satisfying to see unfold.

  12. I still think the best answer is caveat emptor, sick and tired of hearing of all the greedy people who ended up buying a lemon now crying for a bailout.

    Case in point with this Mascot Towers, everybody slamming building management. Well sorry, they manage the building, they didn’t bloody build the thing, nor did they have any control of the builders f*ing up next door, nor are they the ultimate apartment owners.