What to Look for When Buying into Strata
The purchase of a unit, whether for your home or an investment, is a big commitment and can often feel overwhelming trying to ensure all your queries are answered prior to purchase. While it may seem that there is a higher level of protection when purchasing a TV or car, you can take some simple and practical steps that will greatly assist with achieving peace of mind prior to purchasing your new property.
Are you buying a property in an A Class or B Class complex?
Within the ACT there are two classes of Owners Corporations, each with separate areas of maintenance responsibility for unit owners. It is essential that you take the time to understand what class of complex you are buying into and what your maintenance responsibilities will be and to ensure you are not surprised by additional costs after purchase. It is not uncommon to receive incorrect advice during the sales process, and for this reason, the advice you receive should not always be relied upon without first conducting your own research.
You can view details of how to classify if you are looking at an A or B Class complex, as well as their separate maintenance obligations on the Access Canberra website below:
What to Look for When Buying in An Established Complex
It is often seen by many as being less risk to buy into an established Owners Corporation, as you can often see if there is a history of defects, legal action and deterioration of common property. You can also gather some information by inspecting the property, however it is important that you take due diligence by requesting a copy of the contract for sale prior to making an offer as it will contain a wealth of information which may lead to you taking further steps in investigating the property, or lead you to a decision to not purchase at all.
Financials
The contract for sale will detail your levies, but also the monies held in the Owners Corporations bank account. It is critical to ensure that the Owners Corporation has a healthy balance in the Administrative Fund and is particularly important that the monies held in the Sinking Fund, meet the amounts dictated by the Sinking Fund. If the Owners Corporation does not have adequate funds, there may be a greater risk that a special levy will be issued in future should a large upgrade to the complex be needed, or could result in facilities not being maintained as owners may not wish to raise a special levy.
General and Executive Committee Meeting Minutes
If you are looking at purchasing in an A Class complex, the copy of the contract of sale must include two years worth of minutes from any Annual or General Meetings, as well as Executive Committee Meeting Minutes, if the contract does not contain updated information, you should request updated minutes from the sales agent. A sales contact for a B Class complex is only required to contain two years of Annual or General Meeting minutes and again, if this information is not up to date, it is best that you request updated minutes from the sales agent.
When reading the minutes, it is best to see if there are any discussions taking place on defects, large capital replacements and any issues with owners or the Managing Agent. You should also determine if the Executive Committee is active – are they holding frequent Executive Committee Meetings? Are decisions being made at their meetings, or are they often deferred? If decisions are being deferred, is this because the Executive Committee is hesitant to make decisions, or perhaps the Managing Agent is not supplying the required information for them to make informed decisions?
Book Search
Although the contract for sale can provide a lot of critical information, if you are intending to place an offer it is always best to complete a book search which will provide you with access to all minutes as well as critical building reports, such as the Sinking Fund Forecast Report and any defect reports that may have been conducted. You can begin the process of a book search by contacting the sales agent, who will seek permission from the seller on your behalf.
Sinking Fund
It is best to review the Sinking Fund Forecast (SFF), the first thing to check is if the SFF has been completed by a company or by the Executive Committee. If the SFF has been completed by the Executive Committee, you should proceed with caution. It is best to review the schedule of works within the SFF, although replacement and maintenance can be moved forward or delayed if needed, you should assess if items are being given the attention and care that they require. If they are not, this could raise safety issues which can be detrimental long-term property values. You should also reference the balance sheet, to see if the Owners Corporation has adequate funds as per the amount recorded in the SFF.
What to Look for When Buying Off the Plan
Buying off the plan can be exciting, especially as new buildings often have upgraded amenities as the Strata industry within Canberra continues to grow. It is imperative to do your research and understand that the final product when buying off the plan is not always what you will obtain, as there are often variances with floor plans and sizes of the amenities.
Research the Developer
It is best to research the developer heavily and see if they pass the below considerations with flying colours.
- Is the developer established within the ACT or other states in Australia?
- Do other complexes they have built vary greatly in looks from the marketing material?
- Are owners in other complexes happy with their units and buildings?
- Has the developer had legal action taken against them for defects?
Levies – Administrative and Sinking Fund
The budgets that are placed in the initial contract for sale are often not indictive of what your levies will look like in two – three years time, as they are an estimate on what funds will be needed to care for the building and you should budget for the Administrative Fund Levy to increase at least 3% per year.
Often in the first year, there are no funds allocated towards the Sinking Fund, as the building needs to obtain a Sinking Fund Forecast Report during the first year of registration. The amounts contributed towards the Sinking Fund vary dependent on the amenities of the building, however you can expect that the levy will be at least 10 – 20% of the Administrative Fund and you must ensure you will be able to afford this additional cost.
While the concept of buying an apartment can be an exciting adventure, it is vital that you tread carefully and do your research. A smart purchase, will provide great joy and satisfaction for years to come.
For any further assistance regarding your strata purchase, please call us on (02) 6241 4000.
