Strata plan could hit the battlers hard
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.