PRESS RELEASE: Friday 9th June 2017
A leading strata finance group today urged the NSW Government to consider alternatives to the 2 per cent strata defect bond, following news that it had deferred its July 1 introduction for the second time.
Lannock Strata Finance CEO Paul Morton, whose company is one of only a handful that provides funding to owners’ corporations and bodies corporate, says the bond will be a costly, ineffective and inefficient way to deal with the rising tide of defects in apartment buildings and the government should use the delay to find better ways to fix the problem at its source.
“The bond comes with a number of unintended consequences,” said Mr Morton. “On the one hand the government has just announced a range of housing affordability measures to help first home buyers, but this legislation will add 2 per cent to the cost of a new apartment while falling short of its stated purpose ‘to restore confidence in the quality of new strata high-rise buildings’.
“Anybody who believes that the bond is a cost borne by the developer or builder is mistaken; it will be reflected in a 2 per cent rise in the cost of new apartments. Buyers are the losers under this scheme while developers, banks and government will come out winners.
“When the idea was first floated, it sounded attractive for owners – the developer will give you a wad of cash that you can use to fix any problems. But it won’t work out that way.
“When developers put the price up by 2 per cent it’s just the same as buyers putting up the cash themselves. But it won’t be easy to draw on that cash. The government will have to have processes in place to ensure that all claims are valid and that will be costly and take time. Banks will make money from the additional borrowing requirements of their customers to fund the increased price of the property and the government pockets the interest from the bond.”
Mr Morton said administration of the bond could entail the equivalent of a whole new government department to deal with assessments, checks, balances, processes and claims, which ultimately would be paid for by the NSW taxpayer. Increased prices and using taxpayers’ money isn’t a good policy outcome, he said.
“Surely the better approach would be to fix the problem at its source – review the certification process, rein in shonky operators and make it easier for consumers to get information about the credentials of the developer and builder,” said Mr Morton. “There is a lot taken on trust when buying off the plan in a new development and millions of dollars are changing hands with inadequate assurance about the quality of the finished product.
“Everybody wants a building that is good, fast and cheap but the reality is you can generally only achieve two of these ideals. Quality tends to come with a price premium.”
Mr Morton advised all apartment owners to ensure they followed up building faults and defects without delay. “It’s tempting in strata to think of a leak or a crack as somebody else’s problem but in strata it is everybody’s problem” said Mr Morton. “And a problem left untreated is only going to get worse and more expensive to rectify.”