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The PROPERTY DOCTORS, Sydney Australia Novak Properties
NOVAK NEWS - Do High levies Equal Strata Problems?
Ever wondered what your strata levies really say about a building? Far more than just a quarterly bill, strata fees reveal crucial insights into property health that savvy buyers need to understand.
Think of strata as your building's compulsory savings account. Those quarterly payments fund everything from day-to-day operations to major future repairs. But contrary to popular belief, high levies aren't necessarily a red flag – they might actually signal a proactive owners corporation that's planning ahead. Conversely, suspiciously low levies could indicate an inactive strata unwilling to invest in proper maintenance, potentially leaving you facing surprise special levies later.
Diving deeper, we explore how to decode the real story behind strata finances. The capital works fund (formerly the sinking fund) should maintain a healthy balance to cover future projects without resorting to special levies. We analyze what those one-off special payments really mean – are they normal maintenance or signs of deeper problems? Plus, we reveal what to look for during inspections: from common area conditions to fire safety compliance and the enlightening details hidden in AGM minutes.
For prospective apartment buyers, this knowledge is power. We provide actionable due diligence steps including obtaining comprehensive strata reports, reviewing bylaws, researching developers' track records, and engaging specialists who understand the nuances of strata purchases. Don't make the mistake of judging a building solely on levy amounts – the story behind those numbers matters far more.
Have questions about strata properties or need guidance navigating your next apartment purchase? Contact us directly – we're passionate about helping buyers make informed decisions in the complex world of strata living.
Ladies, gentlemen, it's 8 pm, monday night. Novak News, tavon Bubolo, josh Wapshot. Stay tuned, josh. How are you Monday night?
Speaker 2:Nothing better than being in the office, so to speak, getting a little bit crispy out here.
Speaker 1:Yeah, definitely Nothing better than being here with the lovely people tonight. But, ladies, gentlemen, we're going to be pretty quick. Tonight We've got a relatively I won't say hot topic, but it's a topic of conversation that comes up all the time, and it's stratas, strata levies, the conditions of strata. We're not talking about strata managers, we're talking about buildings and the health and quality of buildings. And really, kind of leading into it was a lot of buyers we have coming through our opens just always ask what's the strata levy? Yeah, on a property, and they try to dictate the health of the building by the, the figure that the strata levy might be. Now, um, there can be a lot of different contributing factors to this. Um, and I'll explain strata in a way.
Speaker 1:For as I like to put it to some buyers pretty simply is, strata is almost like a compulsory savings account for your building. Now there's a few moving parts to it. Essentially, you're paying it every three months, quarterly for the future maintenance, upkeep, running costs of the building and anything you buy. You buy a house. You're not going to pay quarterly until bank accounts put money aside. So strata is like a compulsory savings account to a degree for properties. But a few little things. Look do high strata levies equal a poor strata? No, you can find also when, say, it's a block of four, you're splitting the bills with three other owners, as opposed to a block of 25 or 24 where you're splitting those fees with 23 other owners.
Speaker 1:But we have tried to come up with a bit of a guide to help you. So we've come up with a list of things to keep an eye on that can indicate that there might be something behind the scenes or undergoing with Strata Beautiful.
Speaker 2:Thanks for the intro.
Speaker 1:The first one, yeah.
Speaker 2:The first one is high levies. Yeah yeah, definitely a big topic, guys. We'd always say Strata levies or strata rates is probably your top three, besides price, and is it auction or private treaty? It's definitely an important factor. High strata levies with no clear reason. So high levies aren't inherently bad. They can fund good maintenance, insurance and long-term improvements. So not always do we see that a high levy being a negative thing. Steph.
Speaker 2:Sometimes, we can see it as a way that a building's well organised because they're preemptively starting to save for that fund in order to carry out the works. Would you say.
Speaker 1:Yeah, absolutely. And sometimes the opposite can be said as well. Like low levies you might think are fantastic I'm not chipping in too much, but can you may find it that it's not a very active owners corporation. They don't want to spend money. And then you're going to get put with some, with some giant bill as well.
Speaker 2:Yeah, the big surprise. Yeah, definitely a good point there, steps, because some people look all low strata, fantastic, but you have a high investor, uh, investor occupied block. Obviously, the less they have to have to put out, the better in their eyes. So, yeah, very good point. Very good point there.
Speaker 1:Steph, on the lowest driver yeah, I tend to find that sometimes with smaller blocks and particularly with older residents, where you know income and cash flow and things like that they may not have a full-time job are definitely areas of concern. So, yeah, something to think about there, definitely. The second one I'd say to keep an eye on is also a levy. It's called the old special levy, say, to keep an eye on. Is is also a levy. It's called the old special levy.
Speaker 1:Um, and a special levy essentially is an additional cost. Rather than raising the quarterly figure that you would pay, you raise a one-off payment or it could be multiple payments to accommodate some work. Generally it's got to do with work, so it could be a new new roof for for a building. Uh, commonly now we see a lot of balcony works going on um driveways, fire upgrades, things like that. So special levies one or two. It's pretty normal to have it. It's a. It's a way of topping up costs. But if there's a history of multiple special levies or you might see that they're generally addressed in anywhere from one to four payments, um, for whatever the building might be targeting, if it's spread out over five years, there's probably something that's going on in that building that you want to be a bit careful about One other thing, I'll say special levies. I hope I've got this right. It's not a tax deduction. It's not a tax deduction.
Speaker 2:Someone told me Wow, there you go. I could be wrong. Number three poorly maintained common property. So the condition of shared spaces reflects how well the building is managed, guys. So when you're at an open home or visiting a potential property you're interested in, pay close attention to things like lifts, reception areas, carpet on those stairs yeah, that's a giveaway and generally the brickwork as well. You can tell a bit by the brickwork on the exterior. But yeah, have a good look out for common areas and property Just shows that if someone's willing to look after the outside or not, their internal space probably gives you a good indication that it's a well-managed building, definitely.
Speaker 1:And if there's a short flow, a shortfall, sorry cash flow typically they're going to be cutting some of these day-to-day or month-to-month type of operation costs to try to accommodate, you know, a larger problem. So a bit of a giveaway yeah, is frayed carpet gardens out of control.
Speaker 1:Something else that you can do as a buyer that can give you an idea I don't think I've got it on the list here is fire upgrades. Yeah, anything kind of built circa 1960 to 2000,. Even more so. We've got new fire regulations that come into play and there's new requirements required, and so if you're a buyer and you're walking through a property checking the common stairwells, there should be hardwired smoke alarms. There should be sometimes fire extinguishers, depending on the size, that can give you an indication of whether fireworks have been done, and that could be an upcoming cost to the strata as well.
Speaker 2:So, yeah, pretty surprising that looking for the little things will give you an answer to the big picture guys. So, yeah, definitely have a look out for those fire upgrades and your common areas. If they're well kept, you know it's a well-managed building. Yeah.
Speaker 1:Another one to look out for, then, is your strata. Levies are split into two different categories. One is called capital works, used to be called a sinking fund. It's like a savings account for the for the building. The other one is called an administration fund. That's more of day-to-day running costs, um account for the building. Now your sinking fund. You do want to see some money in there, if you can. So if it's running very, very low or hopefully not at a negative. If it isn't at a negative, um probably a bit of a red flag there or an area of concern. But you want to see a healthy amount of money there, um, and it's really a fallback or fail safe and it's also a budget. It. You know for future works as well, that you won't have to do a special levy because it's been well valued, well budgeted and um and well managed up until then. So, sinking fund, or what used to be known as the capital works fund, keep an eye on the balance in there.
Speaker 2:Yeah, I think that's an important one because, like you said, if with a well-managed building and a good sinking fund ready and available, you do limit that that um that opportunity for special levies to catch you by surprise. So again, very important steps. Absolutely. Um ongoing in historical legal disputes, this could be an interesting one. I've seen I think we've seen a few uh strata reports with uh some uh interesting notes in there, but um legal conflict with strata can drag out um and drag the entire entire community down. So guys, that's with obviously individual lot owners having disagreements um agm minutes is a good one for that, Steph.
Speaker 1:Yes, definitely.
Speaker 2:When, looking at your strata reports, guys get real deep into the minutes. There You're going to unpack what's happening, what's really happening in amongst it. So definitely a good point there. Agm minutes.
Speaker 1:Any issues as well between tenants or lot owners goes through a process called NCAT and that's basically a litigation, a loose kind of court system to try to work out solutions between owners.
Speaker 1:So you can actually search that by going online. I don't know the website, but if you Google NCAT you can probably that's N-C-A-T. You can probably find different things through there as well. So something to look at a major defects and, uh, or known remedial works. Real estate agents will sometimes hide this. They shouldn't. They should be honest and forthcoming with you. Um, major defects, I get it all the time. There's that building out at olympic. What is it? Olympic park where the olympics were, that was falling down. Everyone had to move out of of. All of a sudden that's got tower.
Speaker 2:Yeah, that's it.
Speaker 1:All of a sudden, 80% of buyers buying an apartment think everything's falling down. They're not, but it's a good lesson to have Get out there. Look, little giveaways are obviously scaffolding around buildings. There's a lot of balcony work going on with. You know those properties built from 1960s through to kind of the late 80s, so things like that are definitely giveaways. So, yes, Sorry, what was I saying? It was major defects or known remedial works. You'd want to obviously be a bit of a red flag?
Speaker 2:Yeah, definitely.
Speaker 1:And then, I think, the next step guys, ineffective or unresponsive.
Speaker 2:strata management, now, I think as much as where the money is going and how it's handled is also a really important factor here. So things like a good strata manager is proactive, transparent and responsive. So red flags probably things like delayed responses into building issues and things like failure to enforce laws as well. So I think a big factor there is not only the building itself but the strata management that you've actually got, handling the strata itself. If it's not an effective mechanism there, all that money and funds that are put together, it's not going to be effective, as if there were someone who is handling the building well. So that's, I think, a very important one strata management. Who's handling it?
Speaker 1:Definitely, and you do come across smaller lots that are self-managed strata, so the owners will manage it themselves. Be a little bit more cautious. They're by no means a bad thing. Sometimes in smaller blocks of you know three or four, they're actually really good things. But you just want to make sure you're getting all the right information, um out of them. Like you said, josh with fines and things like that. It's not a nice thing to to be living in that environment. But if you've got owners parking in visitor parking all the time and no one's you know enforcing anything, it probably shows a bit of a lax um, uh, focus on on how the properties I can run it.
Speaker 2:yeah, and I actually had a bit of a point here at one of the buildings Sorry guys, Toilet prank, Quick tech glitch One of the buildings I've sold in DY in the last three months. They were actually managed by what the owners called a poor management or ineffective management and what that's actually done. This particular site has actually brought in a lot of levies because there's a lot of work. They wanted to get done all at once, but buyers actually like to see that things are progressing. It's actually done quite well in regards to future sales in the building there, because they understand that new strata's come in. They've taken the control. They know what needs to be fixed. They're doing it right once and the only time and that's really really worked well with a lot of campaigns within that complex.
Speaker 1:So very important point, value-wise as well, and I like something on top of that as well, josh, to what you were saying is recently had a sale here as well, on the Northern Beaches, the apartment pushing close to 25 years of age. So one of the first kind of two-bedroom, two-bathrooms to be built right across the Northern Beaches. Over its span has definitely gone through, you know, its share of strata work. It's about $15,000 remaining in strata sorry, special levies. Now you could look at that and say, look, that's a red flag. But the other side of it is is that essentially had a I won't say restoration, but everything's been ticked off. You know you're going to have a fully functioning you know apartment now in a complex, for you know probably fully functioning. You know apartment now in a complex, for you know probably 10 to 15 years before there's any major costs coming up again. So something to be wise of. Just because there is work undergoing, don't necessarily discount it as bad.
Speaker 2:Yeah, good point. It's going to happen sooner or later with the hot, hot, hot summers, cold winters. But yeah, exactly right, Steph, yeah.
Speaker 1:The next one. Oh look, I don't know that it's truly accurate or not, but percentage of tenants versus owners. The only reason I've included this is that obviously, when you've got a lot of owners living within a complex, there tends to be a little bit of a higher level of care. Tenants I mean not all landlords are going to be as hands on as somebody who's living in that property day in, day out. So a complex that might have a higher yield of owners compared to tenants generally should represent, you know, better management and better care and upkeep for that property.
Speaker 2:Definitely. And then on to our next point unapproved alterations. So renovations done, guys, without the proper approvals, and what this can do is actually affect or avoid building insurance by breach of bylaws. So you can also create disputes over shared services, water, gas. So a big thing there about unapproved alterations. Mainly to do with your insurance, because obviously the older the building, the higher the risk. The insurance premiums increase and that's transferred through to your strata rates in terms of that cost.
Speaker 1:So another point there We'll jump through the last few. So a lack of transparency, missing records If for some reason the information you're seeking cannot be obtained, generally, you know someone may be trying to hide that from you. So you want to make sure you're getting access to the AGM minutes, the annual general meeting minutes, any quotes for any works coming up that may have been discussed and numbers around that. So sharing that information obviously shows goodwill. Hiding that information makes something to think about.
Speaker 2:Yeah, definitely, I think we hit most of the points there, steph. Yeah, inflated or unusual insurance premiums which we sort of touched on there, a history of claims, poor risk management, unaddressed building issues. Like we said, guys, special levies aren't always a bad thing. If you don't address problems, they only become worse and more expensive to fix. So I think that sort of ties in with what we were speaking about earlier before is it's not always seen as a bad thing. A good building or all buildings are going to need maintenance at some point in time. So yeah, I think that that ties in well with that point there.
Speaker 1:Yeah, so, look, how can you check these, these issues out, or how can you raise or find out these, these concerns if you are a buyer? Uh, we'll just put down a few quick points as well. Look, first and foremost you do want to do and it's not compulsory, but I strongly recommend to anyone buying within a strata is that you get a strata report conducted by a third party. Okay, the agents will typically provide it. The ones that we provide are put together by a third party, so there's no sphere of influence on any of that data or information put forward. But imagine it as being a health check and a history check of the entire complex. So it's going to show you any costs that have occurred in the past. It will show you all the financials and anything that may have been discussed or upcoming with works. Is what you want to do as a buyer to make sure that you're getting a full overview of the health and and what's ahead for this, for this property?
Speaker 2:definitely that's that one. And then, delving deeper, guys request the last one, two years of the strata meeting minutes. So that's what we spoke about earlier. There again, under the, the summarization of a normal strata report, you'll get, uh, you'll get the words from the, the owners themselves in the strata meeting. What they're seeing is issues. So definitely get involved with uh, requesting those, uh, that history of agm minutes extremely important and they'll. You'll find things in there that you wouldn't find on a glance over a summary, so to speak.
Speaker 1:So read your bylaws, read your strata bylaws. They're going to be within the contract of sale so you can obtain that from an agent, typically going to be about a third of the way through a contract. But your bylaws are essentially the rules for the building, what is allowed, what isn't allowed, and it can sometimes give you some hints into the health of the building as well.
Speaker 2:Yeah, next one do a physical building inspection walkthrough. Well, obviously you do that at the open when you're looking through, but I guess look for things that mould, smell, all those types of things and, like we said before, checking on that common property as you enter you'll get an idea. It's quite easy to tell a well-managed from a not-so-well-managed building. Guys, but just those little pointers there to look out for when inspecting. Don't worry about it yet Don't get sidetracked from prices negotiations.
Speaker 1:Have a proper look and you'll know what to look for. Yeah, definitely, definitely NCAT again any disputes between owners. You can access all this information um through through the uh geez, I should know what it's called. It's a tendency tribunal system at ncat. You can google that, um, and you can access complex buildings and addresses to see if there has been any history of of uh challenges between owners. I'll put it that way guys.
Speaker 2:Pretty simple one here research, developer or builder, that's a good one whether yeah, whether old or new, I think that's quite a big, uh big point. History will always repeat itself. So go back over previous builds, previous um projects. Get an idea of how that project has gone since it's been built um, give you a few clues or heads up if, if other people are experiencing any issues with previous developments by that builder or developer. So big, big point there.
Speaker 1:It's always good to drive by, like I. Try to find what people, what developers would have built five or six years ago. See how the external facades holding up things like that. Sometimes you can approach a resident. Whether or not they're going to help you too much, I don't know. Look there is. You can approach your str. Whether or not they're going to help you too much, I don't know. Uh, look there's. You can approach your strata. They're not always going to be forthcoming because you won't be the owner of a property. So, um, divulging information can sometimes be a challenge from the strata managers, but it may be worth to try to just reach out and see what they can share with you. Um, from experience, because you're not the owner, um, they don't tell you a whole lot, but worth giving it a go all the same as well, definitely. And then the last one.
Speaker 1:I'd say is just make sure you've got a good solicitor conveyance or someone that is experienced in real estate transactions, knows what they're looking for, has got obviously a wealth of knowledge behind them. They are not going to be, you know, they're not going to be favouring the vendor or the agent. They're there to represent you as a purchaser.
Speaker 2:So they're going to be doing, you know, their due diligence in making sure that you're looked after.
Speaker 2:And I think that's yeah, Stev. I think that's another important point. I've come across some buyers within the market. They may have a friend who's a solicitor but doesn't specialise in that residential buyer area and think, you know, oh, he's my mate, he's going to look after me. I've had a few instances there where that sometimes they don't get the service or the level of service that they require. So definitely a big point there, someone that specialises in the field, because sometimes that can create some hiccups down the track or not get the best advice possible to you. So definitely, definitely, I think that's a big one.
Speaker 1:Yeah, that's kind of it, guys Some things to be aware of, some solutions to those challenges, and thanks again for joining us Monday night. Novak News Question excuse me.
Speaker 2:Sorry, I've got a question. I've got a question from left field Bape shops.
Speaker 1:What about them In your strata?
Speaker 2:Bape shops in your strata? I don't know, I don't know.
Speaker 1:I don't know what do you mean. What do you mean? So you've got an?
Speaker 2:off-screen question here. Call me Dickie From.
Speaker 1:Dickie, dickie Nee. We've got Dickie Nee in the green room. He's raised a question, something to do with vapes. You can speak up, dickie. Everyone can hear you.
Speaker 2:Yeah, well, guys, I think it's yeah, yeah, with vapes I think it becomes a strata, it comes to strata. Let's talk to your strata manager, um, they'll be able to account for that, and then speak to the, you know, representing agencies or their property managers, um, but yeah, that's something to raise with them, because sometimes, obviously, with a lot of your, your stratas now you've got commercial along your bottom floors, so you do get some shops or tobacconists and we've seen a quite colorful um uh there's a lot of yeah, yeah, there, yeah, yeah yeah, well, yeah, crazily enough what happened down in Collaroy on the weekend.
Speaker 2:So just be vigilant, guys. You know you will always get your legitimate businesses out there, but be vigilant. You'll see what's happening from day to day. If you get an idea of anything's wrong and just flag it with your strata manager within the building and it can also indicate, yeah, your values. It can. It can impact property values as well. And insurance and insurance cards. Yeah, I think ever since the melbourne fiasco, um, those sort of premiums have increased for any of those uh shops related to that. So also have that in mind when uh selecting units with maybe commercial uh floor, uh shop, uh shops on the floor.
Speaker 1:Good job, thanks, dickie, nee. Any other call-ins? Any other call-ins? No, that's it.
Speaker 2:Thanks guys, have a great night. Thanks for joining us. Any questions, feel free to contact Steve, and I More than happy to help. Have a great night. Thank you, bye, bye so.