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Leaky Buildings


In the world of property, there’s no scarier label that term, Leaky.


That spiky word holds the power to viscerally move people in a manner that is akin to Mccarthy era reactions to the dreaded red threat and just like in those days, people will go to extreme lengths to avoid being tarred by its staining brush.


For example, if a property they’re selling has any form of maintenance work attached to it, Real estate agents will perform back-flips to let their buyers know, ‘that doesn’t classify as a leaky building though!’


This may seem juvenile to someone who has never seen it first hand, but I can assure you, they are not being over cautious. Banks, buyers and contractors alike, throw logic to the wind when they hear that word. Regardless of how valid these fears are, like any market, property prices are tied directly to public perception. If people believe it’s something to worry about, then it IS something to worry about.


As a result, the distinction between a weather tightness issue and standard differed maintenance could be the difference between a quick sale or a twelve-month campaign of dead inquiry.


Of course, we must acknowledge that the perception around this type of property does not come out of nowhere. If an apartment you own gets struck with a weather-tightness claim, you may as well buckle in for the long hall.


Between the endless body corporate committee meetings discussing the best course of action, contractor quotes, potential legal disputes, not to mention the work itself and all of the mandatory delays that come with that, you’ll be pulling your hair out from the stress alone. And that’s without touching on the costs, potential periods where your unit must be vacant and budget blowouts.


Yes, the stigma around leaky buildings is absolutely valid. But does that mean you should close the book on buying these dreaded properties altogether?


No.


I certainly wouldn’t suggest buying into one of these leakers the day after a building has been slapped with this label. However, once the project is a little bit further down the line and the date of practical completion is in sight, there’s definitely some opportunity to be found.


In a lot of cases, these units are selling at 200-300k below their market value, if you can pick one up after all of the special levies have been paid, you've just secured yourself a newly refurbished building and all you need to do is sit tight and wait for the Code of compliance to be issued. A lot of these re-clads are being finished with a smart weatherboard, stone shilt exterior and modern internal fitouts, which make them almost indecipherable from a new build project. Not a bad horse to bet on.

Hmmmm, If it were that simple, why wouldn't the owners just hold onto it and wait out till the CCC was issued themselves though?

Well, contrary to popular belief, not every landlord is a fat cat cash machine. For your average vendor, being slapped with an exorbitant remedial bill can be financially crippling. It's not uncommon for people to take out debt to pay off their unit entitlement. Yes, if they could afford to hold out they would, but in a lot of cases, they are happy to just break even and wash their hands of the whole thing.


I know, I know, this all sounds a bit predatory, but in reality, by taking that burdensome piece of real estate off their hands, you are acting as a saving grace for a lot of these people.


Because banks won't lend on this type of property, their pool of buyers is stripped down to people with cash who are willing to take on a risk.


And that risk is real.

No matter, how well you plan, these remediation projects always carry the possibility of blowing out further in both cost and time frames. Unless you have managed to stitch together a settlement upon issue of the code of compliance, this type of deal will never be bereft of putting a little bit of skin in the game. But you weigh that up with the potential profits don't you?


On a final note, If I've opened your mind up in any way with this little spiel, you may want to consider one final suggestion. When you finally settle that property and get the keys to your newly refurbished corner of the city, I'd suggest holding onto it for a few years longer (if you can afford to of course)


As is the nature of these projects. The moment a code of compliance is issued, all of those vendors who were just holding on till the council issued the building with that big green tick will now be going to market. This influx of supply is naturally going to take a bite out of your property's max sale potential, so why not hold off for a few years and enjoy your rental yield while this all dies down?


Or even better, you could move into that freshly clad apartment yourself.





Note: The information in this article is provided for entertainment purposes only.

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If you require financial or other expert advice you should seek assistance from a professional adviser.