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Podcast: Horror of our $700 million defects hole

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There’s a horror story, a happy ending and a bit of housekeeping in this week’s podcasts.

The horror is the $714 million owed by Home Building Compensation for all the insurable building defects in Australian homes. And that is money that we, the taxpayers, will eventually have to pay

It was all revealed in this story in the Sun-Herald which made us think, if that’s the level of defects in homes than can be insured – anything three storeys or under  or any work costing $20,000 or over – how may defects are there in the high-rises that CAN’T be insured?


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The happy ending comes courtesy of Waverley Bowling Club in Sydney’s Eastern Suburbs – a struggling sports facility that was at various times going to be two 45-metre high rises plus a training ground for Easts rugby league club, and then an aged care home with attached child care facility.

As outlined in this story, Easts, the Waverley club and developers Mirvac have come up with a plan to build 55 luxury apartments for over-55s, plus two world class bowling greens and a café restaurant.

By the way, in the podcast I refer to the bowls as bowling balls.  They’re not balls, they’re bowls.  I apologise.

Finally we chat briefly about why we’ve (ever so slightly) changed the look of the Flat Chat website.

I’ve never been a huge fan of form over function and we needed people to be able to access the latest Forum topics high on the front page.  So it looks a little busier but we think it still works.  What do you reckon?

You’ll find a full explanation pus an email address where you can send your complaints or kudos, HERE.

TRANSCRIPTION IN FULL

Jimmy  00:00

So, your friend David Chandler, has interfered with the completion of our renovation; did you know that?

Sue  00:06

No!

Jimmy  00:07

We were supposed to be getting a silicone guy come in on Saturday, and he couldn’t, because there was a building they’re working on that the Commissioner had been through and insisted that all the bathrooms had to be ‘re-caulked’, as they call it.

Sue  00:25

Oh, gosh! David didn’t let me know that!

Jimmy  00:29

So basically, there were panic stations.

Sue  00:32

So, that’s the reason I still can’t have a shower in my fabulous new renovated bathroom?

Jimmy  00:37

Yeah, David Chandler.

Sue  00:38

Bloody hell!

Jimmy  00:40

We will be talking about, not renovations, but rectification of defects in a minute, and we’re going to talk about a rescue plan for the Waverley Bowling Club, which is going to result in 55 luxury apartments for over 55’s, and we’re going to talk about the redesign of the Flat Chat website. It’s not redesigned; it’s a bit of a tweak, that’s all. I will explain what we’ve been up to. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  01:13

And I’m Sue Williams. I write about property for Domain,

Jimmy  01:16

And this is the Flat Chat Wrap. That was a huge story in the Sun-Herald at the weekend, about the amount that’s having to be paid in home building compensation.

Sue  01:41

That’s right. I didn’t quite understand it, though… I wanted you to explain it to me, because builders pay for home building compensation.

Jimmy  01:51

HBC, yeah.

Sue  01:52

But, then they pass the cost on to homebuyers?

Jimmy  01:55

Yes.

Sue  01:55

How does that work out? Can you explain to me?

Jimmy  01:58

Okay, well, first of all, it’s only for buildings that are under four storeys.

Sue  02:04

Right. Buildings over that can’t get any insurance whatsoever, which is ridiculous.

Jimmy  02:09

That’s because in 2010, the insurers (the private insurers) said, ‘look, all these buildings are being built, that are being self-certified. It’s just too big a risk. We’re out of here. It’s going to cost us our industry, if we insure buildings that we know are going to be shoddily built. Buildings under four storeys have to have home building compensation; that includes houses. But, to get that, as an owner, you have to prove that the builder has either died or gone into receivership (liquidation doesn’t exist anymore). Otherwise, you would be expected to pursue the builder for the shoddy work or whatever. The builder has to pay a premium to HBCF (or icare), to cover the possibility that they’re going to default. The premiums have apparently gone up 30% in the past year. The number of claims has trebled in the past three years. Builders; obviously they will put the cost of that insurance… They will build that into the cost of your home or your house or your apartment. They want to cover themselves. Basically, they are insuring the building on your behalf (supposedly), but because there are so many builders defaulting, and there’s so many defective buildings, the cost has got out of control. It’s something like $700 million in total, but it’s one and a half times the cost it would be in Victoria, for instance.

Sue  03:43

Wow.

Jimmy  03:45

It’s just one of these things that the government here in New South Wales, over the past 20 years, has just allowed the building standards to get totally out of control, and the insurers are just refusing to pick up. Apparently, it takes an average of nine months to resolve a claim with HBC and in a lot of cases, all the builder has to do is prove that they are not out of business and you can’t claim. According to the article in the Sun- Herald, Fair Trading take a very ‘light touch’ approach to this, so  they will go to builders and try and say ‘oh, can you fix this? Can you pay them back,’ or whatever. All very sort of, you know, friendly chats on the phone kind of thing and some builders are just you know, promising the earth and not delivering.

Sue  04:45

Nine months is a long time. If you’re in a low-rise apartment building, you’re going to have to wait nine months to get any compensation. Like, if a hole appears in your wall or a huge leak in the roof above, which comes down into your apartment. That’s a long time to wait in a faulty building.

Jimmy  05:03

Well, the most common thing is (as we discovered at the weekend), bathrooms that are not properly sealed. They don’t put proper membrane down, they don’t seal around the edges, they don’t grout properly. Because these are all things that are done by subcontractors and the builders will screw them, to pay them as little as they possibly can and the subcontractors will just make it look like they’ve done a good job.

Sue  05:29

Sometimes. There’s obviously good subcontractors out there.

Jimmy  05:31

Yeah, absolutely, but if they’re getting screwed for the payments so the builder can save money, then the end-user is the one who’s going to suffer ultimately and that’s when the claims come in. But you know, it just seems to be totally out of control.

Sue  05:48

Yeah. So, although I couldn’t have a shower (in my shower), good on David Chandler, for preventing all the heartache for that other building that he’s looking at.

Jimmy  06:00

Yeah, I mean, hopefully now that he’s operating, all these issues will decrease. They’ll never go away entirely, but they’ll be reduced considerably. And the other thing is, about the high rises over three stories; four stories and over, they have to put a 2% bond  into the government and that’s against any defects that come up in the buildings. A lot of developers are just adding that to the price and going ‘okay, well, we will make the building 2% less efficient.’

Sue  06:38

And as well, 2% is quite minuscule.  I mean, it costs so much to retrospectively repair buildings when there are defects. 2% doesn’t really go very far.

Jimmy  06:48

No, and especially if you’ve got to get lawyers involved. You know, if you get a really tricky case, with a developer who’s ducking and diving and doesn’t want to accept that there are defects, then that money just disappears, because you’ve got to get experts in to check; do surveys. You’ve got to get lawyers in to go and fight the battle in court.  I mean, it just would be so much easier to get the job done properly in the first place. And as we’ve said before, fixing defects when the building is being built, costs about a fifth of how much it costs to fix them after it’s finished. So yeah, that was really quite an interesting story. I have always been confused about this thing; you know, people say there’s no building insurance. Well, there is, but it’s any project involving building work that cost more than $20,000 in New South Wales, has to be insured through the HBC thing, unless it’s a building that’s four storeys or more, in which case it goes into a whole other scheme. It’s no wonder people get confused and it’s no wonder people; unscrupulous developers and builders, take advantage of that. Very different in Victoria, for a variety of reasons. There, builders have a duty of care, ultimately to the purchaser, for 10 years. They have to have a 10 year warranty on the…

Sue  08:24

 Wow.

Jimmy  08:24

Yeah, so that’s one of the reasons there are a lot fewer claims in Victoria. One of the other reasons there are a lot fewer claims in Victoria, is that it takes a special resolution at a general meeting, to even start legal action, which is going to change when the new laws come in, in Victoria. So, this problem just gets more and more complicated and let’s hope that in five years time, we won’t even be talking about things like this, because…

Sue  08:58

We won’t have anything to talk about; it will be good! We’ll just have happy stories, about butterflies and rainbows and unicorns.

Jimmy  09:05

Yes, and talking about happy stories… When we come back, we’ll be talking about a resolution of what was a bitter battle at one point, but now has resulted in (I think everybody feels is), a win/win. That’s after this. So, we were down at the Waverley Bowling Club, which is in Bondi Junction, near there? Well, it’s in Waverley, obviously, but you know, it’s in the eastern suburbs of Sydney; very near Bondi Beach, and a kind of dilapidated old building with bowling greens that hadn’t seen a bowling ball for a long time, quite clearly. What was it all about? What was going on, Sue?

Sue  09:54

Yeah, well, 10 years ago,  the Waverley Bowlo was in real financial trouble, so they signed an agreement to be bought out by Easts, the group which owns the Roosters NRL club, among others. And, Easts agreed to invest in the bowling club, as long as they turned a profit and look after it; make sure it will be a facility that will continue for many years to come. But then a few years later, Easts came up with a new deal saying, ‘well, you’re not in profit, so therefore, we’d like to bring an NRL training facility to this Waverley spot, and we will send you over to Bondi to have your bowls, bowling club there.’ And, there was a community uproar.

Jimmy  10:37

They were also going to build two high rise blocks, weren’t they?

Sue  10:40

That’s right, two high rise blocks of apartments, too. So, it was going to become a really big development site and lots of the community were outraged and lots of the bowling club members were outraged. The bowling club members actually leafleted as many Easts members as they could, to go along to the EGM that was called and vote against the proposal. In the end, Easts went into a joint partnership with Mirvac. They sold the site to Mirvac and went into a joint partnership to redevelop the site. But this time, they’re going to develop two new bowling greens on the site and only 55, quite low-rise apartments. You have six levels, five levels, four levels,  in four different blocks.

Jimmy  11:27

And, there’s going to be a club.

Sue  11:28

And a clubhouse, with kind of a modern cafe and restaurant and I think a  rooftop and all the kind of modern amenities. So, the bowling club members are delighted. Mirvacs delighted, the Easts group, delighted the local community, delighted. It’s kind of a really fabulous outcome. It’s interesting because there’s lots of old clubs all around. The RSL clubs, bowling clubs, old league clubs, which have all seen better days and many of them are now becoming in the sights of developers to develop them for for residential, or commercial uses. This is a really good template, for how to keep the community happy, the owners happy, the users happy. Hopefully, that kind of partnership can be replicated throughout Sydney. Woolooware Bay, which is the old Cronulla Sharks Club grounds, that’s been redeveloped to a huge, huge residential apartment complex.

Jimmy  12:25

But what’s the community component in this?

Sue  12:29

The Sharks are still there. The community building is still there, but it’s kind of much more modern. It has been rebuilt to much better standards. There  are good outcomes possible and it’s really interesting to see. I mean, when we were there at Waverley the other day, they started digging at the Bowling Club greens.

Jimmy  12:50

Cutting the sword, they call it.

Sue  12:53

They had a bit of trouble, because over so many years, it had become so compacted, it’s really quite hard to dig in, which was a problem for their little ceremony. It was interesting to see some of the bowlo members with tears in their eyes, watching that. But, they also said they were extremely excited, because by 2023, all the work will be finished and it will be ready to celebrate their 130th anniversary at the club. It’s been going a long, long time.

Jimmy  13:19

Yeah, they’ve had a few state and national champions through that club as well, I believe.

Sue  13:24

They have and, you know, kids from the local area join as well and they’ve got whole families with three generations who’ve been members, so it’s lovely that that’s continuing. And as well, they’re going to continue the tradition of barefoot bowls, which brought a lot of money to the club. When they couldn’t really afford to keep their greens in good order, they introduced barefoot bowls. So, that will continue as well.

Jimmy  13:47

You know, we tend to think of bowls as being an old person’s game, because a lot of older people can still play it. But, at the highly competitive level, it really is a young person’s. There’s a lot of walking up and down those grooves as well as the accuracy.

Sue  14:05

And bending down.

Jimmy  14:06

Yeah! I remember years ago, hearing about a guy who’d taken up bowls because he wanted to go to the Olympics, or the Commonwealth Games, sorry; the Commonwealth Games. He wanted to represent Scotland at a sport, but he was already in his mid 20s. If you hadn’t trained for  athletics or gymnastics, or whatever all your life, you’ve got no chance, when you’re in your mid 20s. But, he thought, ‘well, I’ll take up bowls; they go to the Commonwealth Games.’ And he got in; he got into the Scottish team.

Sue  14:37

Fantastic!

Jimmy  14:38

It’s a nice game.

Sue  14:40

Yeah, absolutely and it’s very social.

Jimmy  14:42

Very much so, yeah.

Sue  14:43

Because  people chat.

Jimmy  14:44

Being a part of their thing is that these apartments will be overlooking the greens. And I’m sure they’re thinking ‘well, there’s a potential membership there,’ just sitting, watching.

Sue  14:56

And also a motivation to do a bit better, as well.

Jimmy  14:59

Maybe people can’t handle the pressure. You know, the funny thing would be if people moved in and then started complaining about the noise of the balls clattering against each other.

Sue  15:10

Oh yes, because they really ‘cink,’ don’t they? And, then the bowlers, having a chat and stuff. That would be ironic!

Jimmy  15:18

That would be very Sydney, wouldn’t it; you buy an apartment at the bowling club and then complain about the noise of the balls? I heard that people in the new Omnia, the one in Kings Cross, somebody had written to the council to complain about this flashing sign near their window and could it be switched off at night? The Coca Cola sign, is what they’re talking about. Apparently, they’d only viewed the apartment during the day.

Sue  15:48

Oh, and hadn’t noticed it.

Jimmy  15:50

They hadn’t noticed the sign at all and then of course, at night, it’s constantly changing the light on that side.

Sue  15:58

That would be kind of hard, wouldn’t it? But, it has been there much, much longer than the building.

Jimmy  16:01

 Absolutely.

Sue  16:03

It’s like Luna Park and the apartments near Luna Park, always complaining about people screaming  from some of the rides.

Jimmy  16:10

Well, that’s been going on for years and years and years and people say it’s one of the things that has held back the development of Luna Park. But, we’ve had that story recently where the fire, you know, that was deliberately set so that they could demolish the whole park and put apartments in there, which I don’t think ever happened,which is a good thing. When we come back, we’ll be talking about our website and a couple of little changes. That’s after this.

Sue  16:45

So Jimmy, you’ve done a little bit of a redesign of your website, www.flat-chat.com.au

Jimmy  16:58

One of the things that is very popular (probably the most popular thing on the website), is the forum. You know, people write in and ask questions, and people answer questions. And you know, it’s a funny thing for me. It’s a temptation; whenever  somebody asks a question, and I know the answer to it, I have to resist the temptation to answer immediately, because there are people out there who enjoy engaging. So, I’ve got to give them a chance to answer the question. But the way the website was set up, the 20 most recent topics are automatically generated as a list, but it was way down at the bottom of the page and we’ve got a commitment to our sponsors. We’ve got to let people see their adverts. They were pushing all that stuff down, so I tweaked it around and we’ve now pulled the forum (the most recent things), up to the top.

Sue  18:00

Because that forum is (as well as been popular), it’s really interesting, isn’t it? What was the latest stuff?

Jimmy  18:07

There’s always something new and somebody came up and asked the question about the Owners Corporation making donations. I don’t know if it was to a charity or some campaign or something like that…

Sue  18:18

 Asking if that was legal?

Jimmy  18:18

I don’t know if it was to a charity or some campaign or something like that. And obviously, they objected to whatever it was the owners corporation had supported. So I try to look at the (law) I’m not a lawyer, but I can read what it says in the law. And what it says is, you got two funds in every owners Corporation, you’ve got the administration Fund and the maintenance fund. And the maintenance fund is purely to be used for maintaining physical parts of the building.

Sue  18:47

So, it’s like the sinking fund?

Jimmy  18:49

Yep and the admin fund is basically things like paying your bills. You know, paying electricity bills and professional fees and things like that, that go into the running of the building. It doesn’t say anything about donating money to charities or for campaigns. It is not specifically spelled out that you can do that. But then somebody came up with a case, I think it was in Queensland, where the tribunal there ruled that their law (which is very, very similarly worded to ours in New South Wales), the admin fund is to be used to pay for things that the Owners Corporation gets a return from. i.e, you pay a professional to do a professional job; you pay for electricity, and the electricity keeps coming into the building.

Sue  19:39

 So it has to be a benefit?

Jimmy  19:41

There has to be a benefit. And, you could argue that supporting a campaign that benefited apartment blocks generally, was a benefit to the building. You could argue that; I don’t know how effective that argument would be. And, I don’t know if anybody has ever challenged this. A lot of buildings are members of the Owners Corporation Network; is that a material benefit? They have to pay a subscription; is that a material benefit to the building?  I think so, but is it possible that it could be challenged? So that’s one of the things in the forum, that’s being debated. Somebody has written in and said, an owner died a couple of years ago, and there hadn’t been a transfer of ownership of the apartment there and they’re saying, what paperwork do we need to establish who the owner is?

Sue  20:35

It’s a huge variety of stuff, isn’t it? Then, you’ve got all the normal stuff about pets and parking and noise complaints and what to do. It’s really helpful for people.

Jimmy  20:46

But there’s always something that you don’t expect. You know, it’s quirky stuff that it keeps it very interesting. You know, we get a lot of similar stuff, similar problems, because we all sort of share the same kind of problems a lot. But then every so often, out of the blue, comes something that you just  hadn’t even thought about.

Sue  21:09

It’s a suprise and delight.

Jimmy  21:10

Absolutely. Keeps me occupied; keeps me out of mischief. I hope everybody likes the new look. It’s a bit busier, but then, strata living is pretty busy. Thanks, Sue, for joining us again.

Sue  21:27

Great. Thank you, Jimmy.

Jimmy  21:28

And thank you all for listening. Bye.

Sue  21:30

Bye.

Jimmy  21:32

Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website, www.flat-chat.com.au And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favorite pod–catcher. Just search for Flat Chat Wrap with a W click on subscribe, and you’ll get this podcast every week without even trying. Thanks again. Talk to you again next week.

One Reply to “Podcast: Horror of our $700 million defects hole”

  1. Jimmy-T says:

    If you want to start a discussion or ask a question about this, log into the Flat Chat Forum (using the Forum link on the menu at the very top of your screen). More people will read it there and you can more easily keep track of responses.

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