Five false economies holding back your block

It’s a real estate sign you rarely see around Sydney these days: “Luxury flats – resort facilities – low levies”

Those too-good-to-be-true promises disappeared when new laws in NSW allowed apartment buyers to seek compensation from developers if they had deliberately underestimated the running costs of the building.

What’s most surprising is how many people fell for the impossible dream of low costs and high standards.  But it still goes on because of the cultural obsession with paying low levies.

The Flat Chat forum is full of complaints from residents who are forced to endure deteriorating standards because the absentee investor majority of owners doesn’t want to pay a cent more than they have to.

So what are these false economies? Here are five classics:

Cutting back on cleaning and other services: It’s pretty obvious, really.  A grubby building with run-down facilities means lower rents, lower property values and unhappy residents. A no-brainer.

Not putting money in the maintenance fund: The law in NSW requires all strata schemes to calculate a 10-year capital works plan for their buildings, but they aren’t compelled to put the money aside to finance it.

In Victoria only buildings with over 100 units are obliged to have a 10-year maintenance plan but all of those blocks must put enough money aside to fund it.

No surprise then that many schemes, especially older, smaller ones, prefer to go through the motions but stop short of putting in the money.  No surprise either when prospective buyers look at ageing common property and an empty maintenance fund and decide to buy elsewhere.

By the way, strata finance lenders like Lannock and Strata Finance argue that funding repairs and maintenance through loans, as and when required, is a more cost-effective use of owners’ money. But that’s a calculation that should be done in advance, not on the fly when things start falling down.

Sinking funds in NSW are explained here and Victoria explained here.

Not spending the sinking fund money that you have: Most strata funds don’t attract interest because that would involve tax and everything would be more trouble than its worth. So money that’s just lying there waiting for the a rainy day of Noah proportions is being wasted. Make a plan and spend the money – it’s an investment.

Banning pets: One third of Australian families have pets – that means your potential renters or purchasers are already down by 33 percent if you ban them.

And are they really too much hassle?  There are mechanisms in strata law for getting rid of troublesome animals, even those that have previously been approved.

Not upgrading your technology: Whether it’s low emission common area lights, solar cells on the roof to power them, or security systems to defeat all but the most determined burglars, over-crowders or parking thieves, scrimping on technology is dumb.  It only means yours will be the least secure and most wasteful building in your street.

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