• LoanCaddie

How to avoid buying a dodgy apartment

Whether you're buying old or new, sold background research will be your best investment to avoid landing up with a lemon.



OFF-THE-PLAN AND NEW


Consumer law is heavily weighted against apartment buyers – there are no home building warranties for blocks over three storeys high. But people want and need to buy new properties.


Protections vary from state to state but the standard is that you can claim against non-major defects for two years and major defects for six.


These are the periods during which you can take the developers to court if defects aren’t repaired, so you’d want to choose a developer who’s likely to still be around if and when the cracks start to show.


Phoenixing


This is where a company trades for a while, runs up a stack of debt then goes into liquidation, only to reappear under a different company name. The directors then set up another company, doing the same thing, often with the same results.


So what can the ordinary home buyer or investor do? First of all, be wary of any development where the developer’s name has some qualifier, like the address of the property at the end, before the “Pty Ltd”.


This could be intended to isolate the parent company, and its bank accounts, from your legal claims should serious problems arise.


Database detective work


Your next step is to go to the Australasian Legal Information Institute website (it has databases of court and tribunal decisions), find the appropriate body for your state, then search for the developer’s name to see any disputes in which they may have been involved.


Also go to the ASIC Connect website, find the names of the developer’s directors then search for those names, to see if other companies they may have been involved with have shut down.


The difference between buying off the plan and new is that with the latter you can walk into the apartment and look around. But this can be quite deceptive – the fact that you can’t see any obvious defects means nothing, unless you are a building engineer or surveyor. So it's imperative to do your homework.


OLDER APARTMENTS


The advantage of older buildings is that, if nothing else, you can observe how they are weathering the years. But there’s a lot more you can do, starting with a forensic examination of the strata committee minutes.


Units under six years


These are not new but are still within the defects claims period (check the rules in your state). Buildings with no defects are as rare as hen's teeth. So these apartments should have had a claim lodged, with rectification underway or even completed. Buildings with no defects Again, check that the developer is still in business. If not, walk away

Otherwise, find out why the defects haven’t been identified and be on the look out for committee resistance to pursuing them (perhaps because the developers have retained too much control of the committee).


Not so new blocks


Check in your state when self-certification was introduced? For instance, in in 1998 NSW allowed developers to hire their own certifiers. You can guess what happened next.

That’s not to say all buildings constructed in this period were bad, but it’s when the worst of them went up. In one notorious case, an apartment block in North Sydney was fully certified but the local council refused to allow people to move in as it was effectively uninhabitable.


Older blocks


When it comes to even older blocks, a unit in an obviously run-down building is only a bargain if there’s a plan in place to fix the block, and money available to do so.

An empty capital works (sinking) fund and perfunctory maintenance plan are sure signs that the committee wants the next owners to pay for repairs and maintenance. Don’t be the next owner.


Buildings where the records seem too good to be true are often hiding something, usually to protect property values. You want to see records of problems addressed and resolved – not a squeaky-clean cover-up.


Very low levies (fees in Victoria) are as much an indicator of neglect as peeling paint and rattling lifts. Ironically, they can also be a major lure for the naïve purchaser.


Committees dominated by absentee investors can be tight-fisted. One resident-owner complained on the Flat Chat website that her all-investor committee refused to fix the ancient lift, despite it frequently stopping half a metre or more above or below the target landing.


One committee member responded by threatening to sue her, claiming the ensuing publicity had damaged the value of his apartment.


So it’s not just the physical wellbeing of building. Expert strata searches now include an assessment of the harmony or otherwise of strata communities. If your neighbours are constantly at each other’s throats, it’s not going to be a happy place to live.


Having said all that, plenty of apartment blocks – possibly the majority – are reasonably well-maintained, happy and well-run.


But the best investment you can make is in solid background research to make sure you aren’t the unlucky loser left holding the keys of an absolute lemon.