Strata plan could hit the bat­tlers hard

The Sunday Times - - YOUR MONEY -

IN a move that could spell the death of many strata-ti­tle re­tire­ment vil­lages in Queens­land, a Bill was sub­mit­ted to the State’s Par­lia­ment last month that would re­quire op­er­a­tors of strata-ti­tle vil­lages to “buy back” un­sold units af­ter 18 months.

While it’s called a buy­back, many op­er­a­tors never owned the units in the first place, so it would be more of a com­pul­sory ac­qui­si­tion.

Of course, the Bill is pro­posed with the best of in­ten­tions — to match the guar­an­tees of­fered to res­i­dents of strata-ti­tle vil­lages with those of lease­hold vil­lages.

But the un­in­tended con­se­quences are fright­en­ing and, once again, it’s the lit­tle peo­ple who will be the worst af­fected.

Think about a re­tire­ment vil­lage of 100 units, built by a prop­erty de­vel­oper 25 years ago. On com­ple­tion of the project the de­vel­oper sold all the units, and left the vil­lage to be ad­min­is­tered by a body cor­po­rate run by res­i­dents.

To­day, the av­er­age age of the res­i­dents in the vil­lage is 80, with a num­ber in their 90s. The body cor­po­rate runs the in­fra­struc­ture, but each owner is re­spon­si­ble for their own unit — af­ter all, they own it.

And if the devel­op­ment is like most of its kind, the qual­ity of the homes will vary — most will be fine, a few will be pris­tine, and a small mi­nor­ity will leave much to be de­sired.

Un­der ex­ist­ing reg­u­la­tions, it is the re­spon­si­bil­ity of each owner to ar­range their own sale for the best price they can get. But if this Bill passes into leg­is­la­tion things will change from May. No longer will it be just the owner’s prob­lem if a unit is hard to sell. It will now be ev­ery owner’s prob­lem — the other 99 res­i­dents could be re­spon­si­ble for buy­ing back the un­sold unit.

Rachel Lane of Aged Care Gu­rus spoke to the man­ager of a strata-ti­tle vil­lage in Bris­bane’s north­ern sub­urbs.

The scheme op­er­a­tor is a com­pany with 104 share­hold­ers — the res­i­dents of the vil­lage. Units sell for be­tween $290,000 and $360,000. The vil­lage man­ager said: “Ob­vi­ously we don’t have the funds on hand to come up with that kind of money. We would need to levy the res­i­dents. If we have two or three that can’t sell, we would need to levy the res­i­dents $8000 to $9000. Many res­i­dents sim­ply wouldn’t be able to af­ford it.”

A Depart­ment of Hous­ing and Pub­lic Works spokesman said op­er­a­tors who found them­selves in fi­nan­cial hard­ship as a re­sult of the buy­backs could “seek re­lief”.

That’s eas­ier said than done.

What po­ten­tial buyer in their right mind is go­ing to be in­ter­ested in buy­ing a unit in a devel­op­ment where there is a chance they will be forced to con­trib­ute to a fund to com­pen­sate an owner whose unit can­not be sold?

This lack of de­mand will drive prices down even fur­ther. It’s the ul­ti­mate Catch-22.

The Bill would cause prob­lems for com­mer­cial op­er­a­tors, too. The de­vel­op­ers sold the units to the res­i­dents, get­ting the up­front pur­chase price, and en­tered into a man­age­ment agree­ment with the op­er­a­tor to man­age the vil­lage for the right to an exit fee when the units sold in the fu­ture. Un­der the pro­posed new rules, to get the exit fee the op­er­a­tor would po­ten­tially need to “buy back” a unit they never sold, spend the amount nec­es­sary ren­o­vat­ing and mar­ket­ing and then sell it. Only then could they get their exit fee. One thing is for sure, if the op­er­a­tor can af­ford to buy the unit, it won’t be sold next time as strata ti­tle.

As US pres­i­dent Ronald Rea­gan said: “The nine most ter­ri­fy­ing words in the English lan­guage are, ‘I’m from the gov­ern­ment and I’m here to help’.”

Noel Whit­taker is the au­thor of Mak­ing Money Made Sim­ple and other books on per­sonal fi­nance. His ad­vice is gen­eral in na­ture and read­ers should seek their own pro­fes­sional ad­vice be­fore mak­ing any fi­nan­cial de­ci­sions.

NoelWhit­taker

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