Flat Chat is now appearing in the Australian Financial Review, both in print and online at weekends. This is the first column in its new home.
With recent revelation that the median rent for apartments is now roughly equal with houses in Sydney – and the gap is closing rapidly in Melbourne – many potential investors and residential downsizers are looking at unit blocks in a new light.
No longer the poor relation of the property market, and now a lifestyle choice rather than a financial imperative, the appeal of high-rise living is clearly growing.
But before dipping your toes in the apartment market for the first time, you need to be careful: you may have better consumer protection buying a $1000 TV screen than you have purchasing a brand new $1m apartment.
In most states, the window for claiming against ‘non-major’ defects – those that don’t render it uninhabitable – is only two years.
Major defects can only be claimed in the first six years and in most states, building construction insurance is not required for apartment blocks over three storeys high.
That said, there are some great buildings and good developers around. All the savvy investor has to do is find them.
So what kind of apartment should you buy? Once upon a time, buying off the plan could be a shrewd investment. But then the property booms came along and the prices of apartments that hadn’t even been built went through the roof.
We had shape-shifting, where the developers changed the size and configuration of the apartment you thought you’d bought. And sunset clawbacks, where developers deliberately delayed completion of buildings to invoke sunset clauses (a practice now effectively outlawed in NSW).
In both cases they would happily refund your deposit and resell the apartments for much more than the original price.
Buying off the plan is also a gamble because it’s far too easy for dubious developers and builders to shut up shop and ‘phoenix’ into another equally dodgy project .
So check the directors out through ASIC and then go to the Austlii website to see if their previous companies have been dragged before your state’s Civil Administration Tribunal more often than a good operator should.
OK, how about a brand new completed apartment? At least you can see it exists. But the clock has already been ticking on defects and do any of the strata newbies on the committee actually know what they’re doing?
For all those reasons, old apartments are often a more reliable choice. You can see the building’s physical condition and the committee should have ironed any social problems among residents.
A forensic reading of committee minutes by strata search specialists employed by your conveyancer will tell you most of what you need to know about historical problems and solutions.
However, if there’s absolutely nothing untowards in the minutes, you should be very suspicious. Nothing that involves humans is ever trouble-free.
For the savvy buyer, evidence of a well-run building is worth a lot more than a glossy promise of perfection or the thought that you are the first person to turn on the taps.