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Podcast: Property price panic and dodgy donations

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Elsewhere in this post

With property prices soaring but houses outstripping apartments, as detailed in this story, we try to make sense of it all.

Why is the gap between the cost of houses and apartments growing, even though apartment prices are coming back up to pre-pandemic levels.

And will the current apartment glut in Melbourne – with consequential 11 per cent drops in rents – flip to a shortage, soaring sales prices and runaway rents as soon as our borders reopen and short-term rentals are re-listed?

Who knows?  But we try to make sense of it all.


LISTEN HERE


Then we visit the vexed question, raised on the Flat Chat Forum, of whether or not it’s legal for your owners corporation or strata committee to make donations to political campaigns or fighting funds – even those related to strata issues.

If not, is there any way owners can support campaigns and movements they agree with, but not all of their neighbours do?

And then there’s another old chestnut form the forum – does your owners corporation have a duty of care to enforce by-laws? We say yes and explain why.

That’s all in this week’s Flat Chat Wrap.

TRANSCRIPT IN FULL

Jimmy  00:00

House prices seem to have gone nuts all of a sudden.

Sue  00:03

They certainly have and unit prices are going up as well, but not by as much.

Jimmy  00:07

And in some places, are actually going down, I believe.

Sue  00:10

Yes. In some places they are going down; in areas where there’s an oversupply.

Jimmy  00:14

Okay, well, we’re going to be talking about that; we’re going to be talking about something that’s come up on the Flat Chat forum, about whether or not your Owners Corporation can make donations to campaigns.

Sue  00:26

That’s interesting.

Jimmy  00:27

And we’ll be talking about an old chestnut, about whether Owners Corporations have a duty to act on their bylaws. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:41

And I’m Sue Williams and I write about property for Domain

Jimmy  00:43

And this is the Flat Chat Wrap.

MUSIC

Jimmy

Okay, Sue, you’ve been keeping an eye on house prices. Part of your many duties, writing for Domain.

Sue  01:06

Yes, that’s right. It’s been kind of quite hard to keep your eye on them all the time, because they’re moving so quickly.

Jimmy  01:11

It’s kind of surprising, isn’t it? That we’re, you know, we’ve just come out of there so we haven’t even properly come out of the pandemic.

Sue  01:20

But we just seem to be valuing our home so much more now. I mean, most most of us are now working from home a lot more. Time in lockdown has allowed us to look at our houses, and homes and apartments and think, what do we need? We need more space? Are we thinking of relocating? Actually spending a period, thinking about what we want out of life.

Jimmy  01:40

And what effect is this having on apartments?

Sue  01:43

It’s interesting, because house prices, as you so rightly say, have gone up enormously. Apartment prices have generally gone up as well, but by nowhere near as much. So, it does mean with a growing gap between prices;  between houses and apartments, more and more people are having to look at buying apartments, when maybe once they would have wanted to go and buy houses. So, there’s gonna be a lot more new people moving into apartments, because, you know, it makes financial sense as well. We kind of all really adore the apartment lifestyle. Some of these people have never lived in apartments before, so they’re not really in a position to be able to appreciate that. But, they’re looking in terms of finances and when you look at the Sydney median house price now, it’s hit a new record,  $1.31 million, which is incredible. The unit median is now $754,000. So, last year, houses cost, on average 55% more than apartments. This year in Sydney, they cost 74% more than apartments.

Jimmy  02:02

Wow! So that’s a 25% jump, or depending on how you calculate your percentages. I was reading the other day that the amount of money that’s being borrowed is higher than it’s ever been, obviously, to finance all these purchases.

Sue  03:08

That’s right, because money is cheaper than it’s ever been. But, there’s so many records. I mean, we’re record historic low interest rates. So, if you have a bit of access to money, or access to mum and dad’s bank account, why not buy a house at the moment or buy an apartment at the moment, because money will never be this cheap again.

Jimmy  03:24

Well, that’s true. What about the rental market? What’s happening in that regard?

Sue  03:29

Rents are picking up now. They went down during some of the lockdowns in COVID obviously. They went down much more in Melbourne than they did in Sydney. But now, they’re really firming up again. They’re starting to pick up because investors are now coming back into the market as well. They’ve been encouraged by the rents picking up and yields improving. So, they’re coming back in as well.

Jimmy  03:49

But Melbourne seems to be the exception on so many fronts. I mean,  the average rent of an apartment in Melbourne is down 8%.

Sue  04:00

Yeah, in Melbourne, they’ve got a lot of oversupply of apartments in certain areas;  places like the Docklands and they’ve got a lot more apartments than people want to buy. Just like in the Sydney CBD, people are moving away from the CBD. They may go back again afterwards, but because we’ve got no overseas students; we’ve not got any migrants coming to the CBD’s. So, rents are really going down there as well.

Jimmy  04:24

And, you’ve got a huge number of short-term rental apartments, especially in the centre of Melbourne.

Sue  04:32

That’s right, but rents in Melbourne are beginning to; the decrease is beginning to slow. So, we will see rents picking up in Melbourne, as they are now doing in Sydney, as well,

Jimmy  04:43

I was reading a report today that said that one of the problems in the future in Melbourne is that right now because apartment prices are so depressed and because there is right now an oversupply, that developers have stopped developing new apartment blocks. They’re concentrating on selling the apartments that they’ve got. Which means that they’re saying in four or five years time, there’s going to be a shortage of apartments.

Sue  05:12

Because it will be that time lag, even when prices pick up and rents pick up …

Jimmy  05:16

And people start coming back.

Sue  05:18

Yeah, then it just takes a while to get the construction pipeline in action, doesn’t it?

Jimmy  05:22

So, we’ll be heading for a total bounce on rents and prices and availability in the city, of rental apartments, is going to go down again, especially when tourists start coming back. Is this something that we just have to live with, this boom and bust constantly?

Sue  05:43

I think that’s capitalism, isn’t it, really?

Jimmy  05:45

Well, yeah.

Sue  05:46

That’s what it’s all about.

Jimmy  05:47

There’s different forms of capitalism. Do you think there needs to be more control over the housing market? Like, should the government be taking action to make sure that there is a constant supply of housing for the future?

Sue  06:02

Well, the government has tried in some ways. They’ve got lots of policies to help first home buyers into the market, giving them grants.

Jimmy  06:12

But, a lot of those have dried up now.

Sue  06:14

Yes, that’s right and a lot of people argue, they really distort the market too, because it means that first time buyers take advantage of a grant but it kind of pushes prices up even more, really. So, that grant ends up in the pockets of people who are selling their homes to the new first time buyers.

Jimmy  06:31

What about negative gearing?

Sue  06:32

Yeah, negative gearing. I mean, we’ve been talking about negative gearing for a long, long time and in New South Wales, it looks as if the negative gearing regime may be changing at some point.

Jimmy  06:36

Well, the New South Wales Treasurer has said in the past, that getting rid of negative gearing would be a sensible way forward. But of course, that’s politically a very difficult pill for his party to swallow in the future, because they think they would lose votes, if they cancelled negative gearing.

Sue  06:54

 Because they very much champion the mum and dad investors and those are the people who’d be hit the hardest by that really.

Jimmy  07:15

And also because they attacked Labor over their plans the last election, even though Labor’s plan was to grandfather (as they call it), the existing negative gearing, so that if you’ve got a  negatively geared property, you can keep that, but the coalition just slammed them saying ‘they’re taking away your negative gearing’, and frightened a lot of people into not voting for Labor, which is very hard for them to retreat from that now.

Sue  07:44

That’s right. And we’re looking at prices going up so much. When you get away from the supply chain, lots of people who already own property like those mum and dad investors, are kind of having a ball really; they’re really enjoying it. In Melbourne, prices have been going up pretty substantially as well. They’ve hit record highs, like houses now. The median price there in Melbourne is $974,000 and apartments are $568,000. So, that’s a gap, on average, of 71%, so less than Sydney’s 74%. But, it’s still a big gap. So, we’re gonna see a lot more people buying apartments in Melbourne as well. And we kind of have to hope there’s not going to be too many supply restrictions going forward. Because I guess we’ve reached a record difference in prices between apartments and houses in both cities and in fact, all around Australia really, but the gap will now start to shrink. Because of affordability issues, so people just can’t afford houses, so they’re going to stop buying houses for a bit, some people. The increasing competition for apartments will drive those prices up, with investors coming back in the market as well as the first time buyers buying apartments, it means that the gap will narrow, so we’ll probably never see again (I would think), this huge difference.

Jimmy  09:10

And we were talking to somebody the other day who’s looking at buying property well outside the main centers. I mean specifically Port Macquarie, but it’s right up the east coast of Australia. The property prices there are just incredible in terms of… Well, first of all, they’re very low, but they’re all being snapped up very quickly, apparently

Sue  09:32

Yeah. Prices are rising very fast. I mean, you look at Byron Bay; the prices, the median price is now almost as high as the Sydney median price. It’s incredible.

Jimmy  09:42

But they’re investments. People are buying there so they can have a holiday home when they want it, but they’ll also let it out because they know they’ll always get people coming in. But you know, in Port Macquarie, he was saying that all the properties are listed for auction, but they never get to auction.

Sue  09:59

Because people come in for the first time and just buy straight away. It’s very hard, isn’t it, really? I mean, I think in those areas; those coastal areas, particularly, the real estate agents are having a wonderful time. But, you kind of think, the owners who are selling because they want to cash in on the market, they’re gonna make  a fair bit of money on their property… They still have to buy other property, but then I guess, they’re going to buy property further out. You know, maybe further away from Sydney, further up the coast, further away from the main cities on the eastern coast. Obviously, Mornington Peninsula is doing hugely well. Prices are really rising there as well.  Many of those, you know, lifestyle destinations; it’s all about lifestyle now. And many of those are just going gangbusters, really. So, people are moving further and further away from them. Because with remote working now, they can afford to work from home and they don’t have to come into the cities often. I’m doing a story for next week on somebody (I still find this hard to believe)… He lived in Sydney and he’s now bought a house in Hobart in Tasmania, because Tasmania is so fashionable now. The lifestyle; people are really discovering it as a food and kind of pristine, environmental Mecca.

Jimmy  11:17

Yeah. And  you know, there’s lots of activity there. You know, hiking and all that kind of stuff.

Sue  11:22

Fresh air is really important now, we found out after COVID. He’s actually bought a place in Hobart, and he’s commuting to Sydney from Hobart. So, he comes in once or twice every couple of weeks, but he reckons it’s quicker to fly from Hobart to Sydney, and drive to his job, than it was to drive from the Blue Mountains, where he lived at one point. So, it’s quite incredible, isn’t it, really? It’s just a very different view of distance.

Jimmy  11:51

I hate to think what his carbon footprint is now. I think that might be increased quite a lot.  I just can’t help but thinking, the negative gearing distorts the market more than anything, especially now with short term rentals becoming such a big part of the tourism industry. That’s a great opportunity to negatively gear your property (or just make a profit, you know, you don’t need to negatively gear). It’s just politics getting in the way of good government, again, because it’s only politics, that’s stopping people doing the sensible thing and saying, ‘we don’t need negative gearing anymore to get housing, when in fact, we need to not have it.’

Sue  12:36

That’s right. We can allow everybody to have one house.

Jimmy  12:39

Our politicians are just too gutless.  Labor were going to do it and they got monstered for it and because Scott Morrison monstered the Labor Party for it, now he can’t do anything about it.

Sue  12:51

Yeah, it’s a shame, isn’t it?

Jimmy  12:54

Now, when we come back, we’re going to talk about a thorny little issue that’s come up in the forum, about Owners Corporations making donations to what are effectively, political campaigns. That’s after this.

MUSIC

Jimmy

And we’re back. So, we got this post on the forum. Somebody said, ‘my Owners Corporation made a donation to what is effectively a political campaign,’ (and I don’t even know what their campaign was about). But they said, ‘I don’t agree with the donation, but my money contributed to the donation through my levies; it was taken out of the admin fund.’

Sue  13:40

 So, was it a vote at an AGM or something, where they decided?

Jimmy  13:43

 I think it was a committee; a committee voted. It could have been to object to a building going up nearby, or it could have been pet legislation or something like that. Anyway, this Flat Chat member said ‘I object to my levies being used for that purpose, and I’m probably in the minority, but even so, is this right?’

Sue  14:11

Oh, that’s an interesting question, isn’t it, really?

Jimmy  14:13

Yeah. Just for the record, our building has also done this recently. I remember thinking one not entirely in favor, but it seems to be they’ve decided (the majority have decided), so that’s democracy. So, I did a bit of digging around and it turns out that this has actually gone to tribunals in Queensland and here in New South Wales and the tribunal has said, the admin fund can only be used for things that benefit the Owners Corporation and it’s members kind of directly (how directly is moot). For instance, if there was a building going up near your building, and it was going to affect the value of the properties in your building, would that be a benefit to put money into a campaign to object to that other building going up? It’s a valid argument to say, ‘well, yeah, that would be of benefit to the owners. The other aspect of this is, if you join an organization like the Owners Corporation Network, is that of benefit to the building?

Sue  15:24

Well, you’d have to argue it would be, because you’d be getting great advice from them, and you’ll be able to go onto their forum and ask questions and potentially save a lot of money. I mean, I know the forum can be used for  people saying ‘does anybody know how I can do this a bit cheaper,’ or ‘does anyone know any other companies who can operate in this sphere?’

Jimmy  15:45

It’s an educational thing, so you could very well argue that it was to the benefit of the owners and of the Owners Corporation. We went to and fro on this a bit, on the forum and people can go and read that; it’s all there. And then, a special counsel, a man called Richard Dapchi, whose legal firm were sponsors of the Flat Chat website. He came on and said ‘this is illegal. Your Owners Corporation should not be making contributions for anything apart from things that give a direct benefit to the owners.’ He said in buildings, what do you do about this? The money’s gone out, the funds have been spent on letters or leaflets or lawyers or whatever. What do you do if you find out that your building has done this illegally?

Sue  16:47

Right, so what did he say they should do?

Jimmy  16:49

Tell the strata manager to refund the money from their funds.

Sue  16:53

Because the strata manager should have known better.

Jimmy  16:55

The strata manager should have known better and should have said ‘don’t make this donation; it’s illegal.’ And because the strata manager hasn’t done that, then they’re liable. They should refund the money because you’re not going to get it back from the campaign.

Sue  17:12

No, of course not. That’s really interesting, isn’t it? So that’s been actually tried in court as well?

Jimmy  17:19

There’s been a tribunal in Queensland and there’s been a couple here in New South Wales, where the member has said; just quoted the law. It says the admin fund should only be used for the benefit of the Owners Corporation and the building. That’s part of the thing that defines the difference between the admin fund and the sinking fund, or the maintenance fund, as it’s called. It says the admin fund should only be used for things that benefit the Owners Corporation and the owners.

Sue  17:53

Well, that’s worth looking into, isn’t it? I wonder how long it goes back?

Jimmy  18:00

What about where the owners; I don’t want to get too specific, but one of the ones we know about was supporting a campaign to establish the rights of Owners Corporations to make their own bylaws and this is all part of the whole pet thing.

Sue  18:17

And also, Airbnb.

Jimmy  18:19

And Airbnb. When the Court of Appeal said that blanket bans on pets were illegal, then a campaign started to support the right of Owners Corporations to establish their own bylaws. What about if a majority of owners in a building want to support that?

Sue  18:41

Yes, I don’t know. But maybe, they should actually contribute from their own pocket.

Jimmy  18:47

Here’s my theory. If you feel strongly as a committee, or a chairperson, or a secretary, or whatever… You feel strongly that your building should be supporting this because it’s some way, indirectly beneficial, but not materially beneficial to the owners. I think you’re in a unique position, if you choose to communicate with your owners properly. And a lot of (as we know), a lot of Owners Corporations committee choose not to communicate with their owners at all. But if you have those lines of communication open, you’ve got the golden opportunity to say to people ‘hey, we want to contribute to this campaign. We think you should contribute to this campaign. We realize that some people don’t want to contribute, they might disagree with this. But, if you are in favor, how about putting some money into this fund?’ Now, you could do that by saying ‘here’s a donation page for the fund directly,’ or you could say ‘send some money to us and we’ll pass it on as being from owners in this building.’ Or, you could even make it a pledge where you say ‘okay, if you come back and pledge 20 bucks or 50 bucks or whatever, that will come in your next levy statement.’

Sue  20:08

Can you do that?

Jimmy  20:09

I don’t know. It  just seems like a good idea to me.

Sue  20:11

It does, yes. That’s a much better idea, isn’t it? Because it means those people who don’t agree are not actually funding something they don’t agree with but the people who are committed, are putting their money where their mouths are.

Jimmy  20:25

Yeah. In fact, you could have a building running two funds. They could say ‘if you’re in favor, donate to this fund. If you’re against it, donate to that fund.’

Sue  20:36

wouldn’t be very good for community solidarity, would it, really?

Jimmy  20:40

I disagree.

Sue  20:41

People might have very heated opinions and that division will get wider and wider between them.

Jimmy  20:46

 Oh, you’re not asking them to get involved in an argument. You just want them to give you money. In the case I was thinking of that affected us, I was annoyed. I didn’t want to go to the barricades on it. Some people did want to go to the barricades on it, by the way. There were people in the building who were much more annoyed about it than we were. But I actually thought ‘well, I don’t particularly want my money  going towards that.’ But, the actual amount of money (which was something like $40 or something, in terms of our share),  wasn’t going to break the bank, but I was still annoyed about it. It would have been less divisive for us to have got an email saying ‘we think we should be supporting this. We want you to support it. If you agree, send us some money.’

Sue  21:37

Yeah,  that’s a good idea, Jimmy.

Jimmy  21:39

I think that actually builds community rather than undermines it. What undermines it is people taking decisions with which the large number of people don’t agree.

Sue  21:50

Yeah and a lack of transparency in that decision.

Jimmy  21:53

A lack of communication. Good, we’ve sorted that out.

Sue  21:57

Thank you, Richard, for your advice.

Jimmy  22:00

Free! When we come back, we’re going to talk about another prickly issue, which is, do strata committees have an obligation to enact and support their bylaws? That’s after this.

MUSIC

Jimmy

And we’re back. So this is another one from the forum and it was just a throwaway line, which reminded me of discussions we’ve had many times in the past, on the forum, about whether there is an obligation of strata committees to follow through on their bylaws and enforce their bylaws.

Sue  22:40

Well, I would have thought there would be, because what’s the point of having bylaws, if people aren’t going to enforce them? Are you saying that maybe the bylaws would have fallen into, you know, people just not bothering with them anymore and kind of ignoring them? And, was it parking, or would it be pets?

Jimmy  22:58

Well, there’s a large part of the whole bylaw setup that’s signaling. You write your bylaws, and people come in and supposedly read the bylaws and they go ‘oh, these people are actively against noisy parties or actively for pets or whatever.’ And so there is signaling to that degree, but these bylaws exist, not just to let people know what’s acceptable or not, but to stop them from behaving badly. It was a throwaway line in another post about another issue, where somebody said ‘of course, there is no obligation on the strata committee to enforce the bylaws’. That is not true.

Sue  23:38

So, they do have to do it?

Jimmy  23:40

When this first came up (and it doesn’t actually spell it out in the law, that there is that obligation). I called up Victor Dominello, who at that time was Fair Trading minister, and I said, ‘is this true, that there’s no obligation?’ He referred me back to his speech for the second reading of what was then the new strata act. It’s now six years old. And he said in it, it says that the Owners Corporation has a duty of care. Now, there are specific sections of strata law, that say you can go to your committee and say ‘I want you to do this,’ and if they refuse to do it, or if they just don’t do it within a certain time, in section 232 {2} of the act, that you can then take them to tribunal and seek orders. Now, that means that can cover anything, right? But it means if you’ve got a bylaw about pets or parking; let’s say parking and the Owners Corporation committee( the strata committee), can’t be bothered to chase up somebody who’s parking in your parking space or parking in visitor parking space. You can go to the the tribunal and say ‘I asked them to fix this; they either refused or just didn’t do anything.’ The tribunal can then order them to do that. Now, that doesn’t mean it’s not an automatic thing.

Sue  25:18

Yeah, but so it would really be much more efficient if the committee did what it had to do in the first place.

Jimmy  25:23

Yeah, but you know, there are no strata cops running around, taking notes and saying ‘hey, you should have enforced this bylaw.’ It does require the owners in the building, individually and collectively to take action. We’ve all lived in buildings where bylaws have been in place, but people have ignored them. For instance, the last block we lived in, there was a couple who used to to come down for the weekend and the first thing they’d do was burn off the barbecue, right beneath our window. So, they fire up the barbecue to maximum heat, so they could burn off all the fat and oil. We complained and they ignored us. Then, we discovered there was a bylaw that had been there all the time that said you couldn’t have a barbecue on your balcony. As I say, you know, there was no strata cops running around but as soon as we complained about it, then the committee looked and said ‘we’ve got a bylaw about this,’ and told them ‘get the barbecue off the balcony’. If they hadn’t behaved so appallingly inconsiderately in the way they use their barbecue, they’d have probably got away with it.

Sue  26:32

Sure, because they wouldn’t be bothering anyone, really.

Jimmy  26:35

Exactly and that’s how community works.

Sue  26:38

Fantastic.

Jimmy  26:39

There we go; we sorted out so many problems today. All we need now is the money to go and buy a new apartment, an investment. I won the lottery today, by the way. Oh, again?

Sue  26:54

Oh again!

Jimmy  26:54

Yep, $8.25!

Sue  26:56

Oh my god! Well, that’s nothing compared to your speeding ticket you got the other day.

Jimmy  27:02

Thank you, Sue.

Sue  27:06

The gap between apartment prices and house prices has nothing on the gap between the income; your income from the lotto, and your outgoings.

Jimmy  27:16

Outgoings as speeding tickets or the percentage difference between the speed I should be going and the speed I’m actually going.

Sue  27:23

That’s right! Yes, absolutely.

Jimmy  27:25

Okay. Thanks for dobbing me in. And thanks for coming along and chatting.

Sue  27:29

 Great, Jimmy.

Jimmy  27:30

Thank you all for listening. Bye. 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.

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