Avoid Buying Modern Apartments 'Like The Bubonic Plague', Expert Warns
A new report says it will cost $6.2 billion to fix Australia's "construction crisis" -- so how can you avoid being stung, if you're buying today?
Thousands of apartments nationwide have defective cladding installed, with billions needed to fix a variety of major issues including water leaks, fire safety breaches and catastrophic structural failures. That's according to a new report from Equity Economics, commissioned by the Construction, Forestry, Maritime, Mining and Energy Union (CMFEU), which says the already-infamous woes of several Sydney unit towers may be just the tip of the iceberg in Australia's apartment sector.
"Australia’s construction industry has reached crisis point," the report, titled 'Shaky Foundations', claims.
"From cracking apartment buildings to massive cost overruns in public infrastructure, there is not one part of the sector that isn’t failing in some way."
The report warns the long-term impacts of current market settings -- including deregulation of the market, developers "cutting corners" and inferior quality products -- may be "diabolical".
The cost of fixing the multitude of problems is estimated at $6.2 billion over a decade, including addressing 3461 apartment blocks and some 170,000 units with combustible cladding.
"In some cases, the costs of this remediation has been up to $165,000 per dwelling," CFMEU National Secretary Dave Noonan said.
"Tens of thousands of families, many of whom have purchased their first home, are now stuck with the crippling cost and mental anguish of owning homes that they may not be able to live in, are unsafe and cannot afford to repair."
So if you're currently in the market for a new apartment, how can you avoid the troubles plaguing the industry, and avoid your own property disaster? We asked a few experts.
Have a checklist
It's difficult to know straight away if you're buying into a safe block or the next disaster zone, but Peter Koulizos, chairman of the Property Investment Professionals of Australia, said there were some obvious danger signs to look out for in a new block.
"The areas you should watch for are wet areas, like kitchens and bathrooms. Look for signs of leakage and cracks. A 10 or 15-year-old building shouldn't have any cracks, and that's easy to look for during inspection," he told 10 daily.
"Look at body corporate meeting minutes and what's been discussed, like issues with the air con or lifts. It will give you an idea of what's happened recently. Check out the sinking fund, where all the owners put money into a kitty for major maintenance, to see what has been spent so you don't get a nasty surprise.
"The real estate agent should have all that information."
Simon Gourlay, senior sales agent at Sydney's Domain Residential, urged buyers to check the reputation of the agency selling the property. With off-the-plan units, he said buyers should do a basic check that the development has been approved by council before forking over a deposit.
"If you're buying something that's not approved, who knows what's going to happen," he told 10 daily.
Don't buy new
While some experts gave us their tips and must-dos, one rejected the premise of our question entirely.
"Avoid anything built from the mid-1990s to now," Simon Pressley, market analyst and buyer's agent at Propertyology, told 10 daily.
"I mean every apartment in a high-rise complex from the mid-90s, avoid it like the bubonic plague. There is no checklist of things to look for."
Pressley said "poor governance" in the industry over the last two decades had allowed poorly-built properties to flourish, and claimed there was little way for buyers to "assure" themselves they weren't buying a dud.
"There is no such checklist. Nothing will give you the guarantee. As each year goes by, more and more buildings will be exposed. Why would anyone prepared to spend up to $1 million want to take that chance when you don't need to?" he asked.
He said older properties, built before the 1990s, were a safer investment. Pressley recommended buyers pay for a certifier or other professional to look at the foundations and essentials of the building, as well as to check for sub-standard materials, and get a conveyancing lawyer to scour body corporate minutes.
"That still won't give you full certainty, but it's the closest thing," he said.
It was a similar sentiment echoed by Bronwyn Weir, co-author of a report commissioned by state and federal governments into building regulations. She told an ABC Four Corners investigation into Australia's building industry on Monday she wouldn't buy a new apartment, saying it was "common sense" and "logical".
“If I was going to be investing in an apartment, I’d buy an older one,” Weir told Four Corners.
“I wouldn’t buy a newly built apartment.”
Do your research
Koulizos said buyers had to be aware of the fine-print in their contract, which in some cases allows the developer of an off-the-plan building to adjust the details of the unit they're building without notice -- so what someone buys may not be what they ultimately get.
Gourlay, whose agency has a heavy focus on selling high-end units off-the-plan, said there can often be "some room for movement on the overall size" and specifications of such an apartment, and recommended buyers engage a property lawyer to go through the paperwork.
"You also need to find out what other similar apartments sold for in the block, so you know if you're paying too much or just enough," Koulizos said.
Be financially realistic
Koulizos said new apartments can be a good way for first home buyers to get on the property ladder, but may not be the wisest purchase for those looking to resell the unit quickly and upgrade.
"New apartments are notorious for limited or negative growth. They lose value," he said.
"It all looks great and sexy when you move in, but if you want a second bigger home, that's a problem, as your first home won't grow in value for seven to 10 years, if at all."
Koulizos also warned some banks may not even want to lend money to buy an apartment -- or at least not the full amount a buyer needs -- due to an over-supply of units in some areas. Getting in touch with a mortgage broker, who can link buyers with institutions willing to lend money was his big tip.