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  • #7883
    Hi All

    I’d be grateful for any advice please.
    I am thinking about buying a 2bdrm unit for $660k in an upmarket complex in Sydney as an investment property with my Mum as the first tenant. It is unit in a 105 apartment complex. The site was originally a ceramics factory with steel frame but converted to an apartment complex, (retaining much of the original steel frame), in 2004

    The problem is that the strata report i requested identified the issues below (please see extracts from reports below).

    1. Would any of you still proceed with buying this property? 

    2. Can you share any experiences of similar strata issues and how they have impacted upon you or the property price?

    I am not sure how serious these identified issues are but people on a property investment forum have said i am crazy to even consider buying this property – but i love the property itself as it suits my needs perfectly (ideal apartment from my mum and only 5 minutes walk from my house so i can help with emergencies and she can see the grandkids)?

    3. I've heard that strata complexes with large repair issues can avoid large special leviesave told me that when older people in  levies for big repair bills by simply getting a strata finance loan (SFL) (upto $25k

    per unit) to fund the repairs which only modestly increases levies and pushes cost onto the nextd the costs onto the next owners rather than current owner but have the downside of driving the property price down (by the value of the SFL per unit) until the SFL is repaid (although if i buy i would not be looking to sell in the short/medium term so this does not seem a big downside for me)

    – does anyone have any experiences with SFL's and info about how common these are and how applicable to this situation?

    4. Do you have any other advice?


    Thanks for any help in advance!


    Excerpt from Strata report:

    Defects Claim
    In July 2011 report from consulting engineers, identified building defects in common property and various units. As the building was still under warranty at this time (the period is now expired), the defects were the builder’s responsibility to rectify under the warranty provisions of the Home Building Act, and a copy of the report was forwarded to them.

    The owners are currently making a claim for defect rectification against the builder (their second such claim) and have engaged Lawyers to act for them in relation to a Construction Defect Claim.

    The strata manager advised that no estimates have as yet been obtained for the rectification work, however he expects costs to be in excess of $1 million.
    This claim is still in its early stages and as the outcome is unknown, any eventual costs to owners are also unknown. If the owners are unsuccessful in the claim, a Special Levy may be required if they are obliged to fund the necessary work themselves.

    However, the deficiencies raised as a result of inspections by Fire Consultants, Paint and Coatings Consultants, and Acoustic Consultants cause much greater concern. If the defects these Consultants have detected in a small sample of units are replicated throughout the complex, the cost of rectification may well escalate to millions of dollars.

    Excerpt from engineers report:

    We understand that extensive corrosion to new and existing steel beams throughout the complex has been the subject of numerous past reports.
    Over large sections of existing steel or where new and old steel have been welded together, the incidence of corrosion appears to have manifested much earlier than one would expect using a Micaceous Iron Oxide system that should have received correct surface preparation and application.
    We note that Dr X (edited name) has been engaged to provide a detailed report on the issues of coatings failures to the structural steel at the subject building and when his Expert Report is complete it will attached in Appendix B.

    Appendix C
    Building Code Solutions Report of Inspections of Units dated February 2011
    A number of items of concern are noted in the report relating to possible non-compliance with fire separation of bounding walls between units and unprotected steel beams and roof purlins passing through these same bounding walls.
    Building Code Solutions Report of Inspections of Units dated June 2011
    All 3 units had the ceiling void above their bathroom inspected by viewing through a ceiling hatch. All 3 bathrooms displayed ventilation ducts penetrating bounding walls without fire dampers installed. This is a possible compromise of the fire rating of the bounding wall.

    Appendix D
    EMGA Acoustic Report dated 17 June 2011
    A sample of 6 units was tested for sound transmission and most failed the less stringent BCA 1996 requirements while all units tested failed the 2004 BCA requirements.

    The possible breaches and failures noted in the reports have the potential to escalate to a very significant claim if the same pattern of deficiency is proven to be replicated throughout the entire complex.

    We recommend that the Owners Corporation seek legal advice to determine if the sample of units which appear to show anomalies in their Fire Protection and Acoustic Rating is sufficient in number to substantiate a claim or if a broader sample of units should be inspected and tested to arrive at a definitive conclusion.

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  • #14641

    If you are concerned about the prospect of additional costs associated with the unit you should assess the situation based on your circumstances and perhaps get someone in to look at the building and offer their opinion.  One thing you can consider if you are very keen is to reduce your offer to take into account the prospect of expensive rectification works in the future.  For example, say the builder was not liable and works were to cost $2 million, this averages out at about $20K per unit, although this will vary depending on unit entitlement.  In the general scheme of things that is not a very large amount of money.  By way of comparison I live in a strata where we estimate we need to undertake works that will likely cost $800/900K and there are only 9 of us.  Personally I am not a fan of strata loans – the interest rate is high relative to market rates and it is not a way of pushing liability on to the next owner, as any remaining liability will be factored into a future sale price.  Keeping strata levies low will not pay the loan off faster.  In that situation I believe you are better off borrowing the money yourself to pay a special levy.


    Note if your mother is a tenant and pays market rent and you have this as an investment property, any costs are likely to be deductible for tax purposes.  You should seek advice from an adviser on those issues.


    More generally if you owned a house then you would also incur expenses from time to time to maintain it, it always puzzles me that people in strata schemes don't consider that.  However – you may not want the uncertainty associated with the building and that would be the overriding factor for me.  This kind of thing can be very grief-making!


    novice1oo – You need to take into consideration the fact that Strata Reports by necessity include extracts on every nut-and-bolt issue that the Inspector / Consultant finds on the Strata File – and whilst that approach is reasonable it’s not always helpful.

    What you and every other prospective purchaser then needs to do is to read between the lines so far as is possible, to ask questions of your own Legal Adviser, the Consultants whose Reports are referenced in the Strata Report, the Strata Manager, and even the Secretary of the Plan’s Executive Committee if you can.

    In my opinion, and based solely on the information that you have provided ..

    The Construction Defect Claim against the Builder could go either way, but as it’s “defect rectification” (unspecified), the works and the costs thereof could be staged if the Owners Corporation needs to fund it.

    The compromised fire protection issues are not major, and relate to sealing gaps around the steel beams at the points where they adjoin or pass-through boundary walls, and the placing of dampers (shut-off flaps) in the exhaust fan ducting at those same locations.

    BUT ….. (there’s always one) I’d be most concerned about the Engineer’s Report with regard to the corrosion of the structural steel-work within the building, which whilst apparently due only to the absence of corrosion protection at the welded joints at the time of construction, is no doubt a long-term issue (ref: “numerous past reports”) post construction; and as yet unresolved probably due to the cost (?).

    I'’m still loathe to advise you about which way to go, other than to say that if you’re still in doubt after making all reasonable enquiries; then don’t do it !! 


    Also, bear in mind that any building warranties that are in effect, only apply to the new work and not the original structure. Personally, I think you may be entering a world of pain … this building sounds like a triumph of style over substance. The “new car” smell will fade but there’s every chance the problems will keep coming. Caveat emptor.


    thanks for the info – someone else has bought the property for $660k


    Good luck to them – I'd call that a bullet dodged.


    Who were the developers & builders? where is the building located?

    I only ask as i am buying 'off the plan' & the developers/builders are also retaining much of the original steel frame. Would hate to run into similar problems.

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