Buying in new high-rise apartment developments - the risks

Buying in new high-rise apartment developments - the risks

I look outside my office window, at a very colorful high-rise residential apartment block across the road. I cautiously take in a sip of coffee, as I’m reminded of the troubles investors faced almost ten years ago. Financial losses were coupled with despondency and all because they trusted the spruikers that sold an empty pot, at the end of this rainbow.

Even though this building was one of the last residential high-rise towers built that was covered under the Home Owners Warranty Insurance (HOWI), many investors lost “their shirts” over the complex, and this was all due to the low grade materials used and poor construction standards.

The Elma Apartments brings back memories. Unfortunately for many investors, friends and family, these are memories that are not so pleasant. However, investors that endured the 2005-2007 downturn in the property market and put up with the arduous legal battle to have building issues rectified, scraped through.

Presently, it almost seems like deja vu for me, as I travel around Sydney, inspecting development sites for sale and new apartments our office is about to manage. Conversely, the biggest difference between then and now with the high-rise towers presently under construction, is that they are taller and denser in terms of apartment numbers.

More importantly, since the 2002 changes governing building works warranties; few realize the enormity of the financial heartache investors are about to face. 

I have been sharing for years on this subject of bad construction standards, in relation to high-rise development.  You can read more about what I refer to as the storm that’s brewing over Sydney high-rise construction here.

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But now let us talk about some simple, yet vital tips and guidelines you can adopt, if you want to buy into or have already bought an off-the-plan apartment in a new high-rise development:

1. Be mindful that any residential building, that is over 3 stories/levels, does not have HOWI cover, even if the agent has told you otherwise.

a.     If the agent/agency told you it has; you have strong grounds to vitiate the contract or seek for damages. I recommend that you seek legal and independent advice on this matter.

b.     The best visual explanation when insurance is required, can be found on the Practice Note 2014-01 Issued May 2014.

2. Make sure you undertake a thorough background search on the developer and more importantly, the builder; before signing any property contracts.

a.     What else have they built?

b.      How how has their previous works stood the test of time and what was the quality of the finishes (inclusions). Don’t be afraid to ask a tenant in the complex what they know.

3. I’m always amazed by how many purchasers don’t conduct a thorough, pre-settlement inspection.

a.     If your property management team doesn’t understand construction, hire a building inspector to compile a report; important and paramount: before you settle, not after.

b.     There are statutory standards that a builder has to comply with. However, because of private certification and the enormity of the projects, builders take short cuts, as not everything is supervised and checked. Builders consider these to be small issues, but they cost a lot of money in the future for investors. Simple examples:

                                               i. Not painting under doors or on top of doors. Soon enough, moisture penetrates the door’s skin; bathroom, laundry and ensuite doors, causing them to swell-up and before requiring replacement.

                                             ii. Badly glued floor-tiles in bathrooms, balconies, laundry and kitchen areas. This is the main cause resulting in waterproofing failure and water seepage.

4. Make it a priority to find out which Strata Management Company will be looking after the complex. There are “… dangerous liaisons…” between Strata Management companies and Developer/Builders, particularly of high-rise apartments.

a.     Take an active role in the owners-corporation.

b.     Don’t be afraid to sack and change Strata-Managers.

c.     Under the changes to the strata scheme and amendments to the Home Building Act 1989; there are statutory requirements that need to be followed to make building repair claims. If these aren’t followed, even in regard to what the builder/developers are liable for, they can walk away scott-free.

Be mindful, high-rise apartment rectification is costly. We don’t truly know the extent of future remediation required by new products used; such as the prefabricated paneling used in high-rise, or  quick drying additives injected to concrete and wafer flooring. One thing we do know however, is that many high-rise developments are failing in regards to building codes.  

Don’t rely on what the agents or spruikers tell you. Conduct the background checks in your own accord, before signing any contract as ultimately, any and all future repairs and major works to be undertaken, will come out from your bottom line.

Last but not least, engage a strong property management team. The property manager is the conduit between the Strata Company and the rectification work being done by the builder. Building insurance is complicated at the best of times. 

 

 

 

 

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