NSW strata law changes: Do the positives outweigh the negatives?

As August moves closer and NSW strata laws look to be revised, there has been much coverage of one controversial proposed change in particular. This is around a proposed law to require that only 75% of strata unit owners in a block need to consent to its demolition, compared to the current law that states 100% of strata unit title owners that must consent to the block being sold to a developer and demolished to make way for a new construction.

The proposed change will include guidelines to ensure that any unit owners not wishing to sell, but are the minority in disagreement, will be as comfortably compensated as possible and assisted with relocation within their new area. Even if the proposed change does not get passed it is interesting to see such a change to strata unit laws being put forward.

The significance of this change is really quite reflective of the scarcity and expense of land in the Sydney metropolitan region. The Department of Fair Trading is really thinking ahead with this proposed law change with a shift towards building ‘upwards’ versus ‘outwards’ – more apartments and units versus detached houses. It’ll effectively make it easier for developers to scoop up older unit blocks, demolish and redevelop them to make newer, prettier and higher density blocks.

Opinions have been heavily polarised by both industry experts and everyday Australians across blogs and news articles commentaries. So I thought I’d sum-up of the more significant community perspectives – both positive and negatives – on this proposed law.

• Negative – Developers profiteering from artificially increasing suburb median unit values

The role of developers in acquiring these older blocks for demolition will always focus on their own profitability. Should a suburb see substantial knock-down-rebuild developments go up, prices may artificially increase and some existing area citizens may be pushed out of the postcode entirely.

• Positive – Can encourage a more efficient use of well-located land space

Some argue that Sydney runs the risk of becoming like Los Angeles where the urban sprawl creates havoc for commuting and the overall liveability for metropolitan citizens. Sydney has an inefficient road network/design and does not offer the public transport connectivity across the metropolitan area that cities like Melbourne and Brisbane do. Encouraging higher density re-purposing of existing land spaces could help to curb this.

• Negative – Overseas investors may create ownership monopolies

This could have serious consequences for the cost of living for Sydney unit renters. If it becomes easier for older blocks are to be redeveloped with greater unit density and these become open to foreign investors from day one, off the plan. Some opponents suggest overseas investors may create strangleholds on certain suburbs and this could again artificially increase both unit values and rental asking prices in these suburbs.

• Positive – The 25% of unit owners in opposition could benefit more than they realise

If this law is passed, it’ll mean that unit owners and strata managers will need to work more closely together when tabling developer offers. Those who are resistant to selling out to developers may benefit from the groundwork done by the 75% of owners who are for it. All offers would need to be meticulously investigated both in terms of fair price and sellout gain potential, but also the risk of not selling out sooner and having less flexibility later on.

One example of this is if a developer was interested in two blocks side by side so they could redevelop the site into one large development. If the neighbouring block wants to sell and your block does not, the dual sale won’t go ahead. However, the non-selling block may suffer because future developers can now only develop one of the sites as opposed to two. Future offers may not be as great. In these situations, the 75% who want to sell can highlight the higher gain potential of selling now versus later to the 25% against it.

• Negative – Where can the 25% who are forced out, afford to live?

Opponents to the 75% majority will be forced to sell regardless. If they are owner-occupiers and wish to maintain a similar lifestyle by living in the same postcode, they may lose out. It is likely that many blocks in that area are also being bought out, meaning there is less rental stock or affordable older stock for sale, that this 25% can find for a new home. Prices would increase due to the scarcity of stock available and the 25% may be in a worse financial position than staying where they are.

• Positive – Replacing blocks with higher density could promote better infrastructure in an area

Some argue that if this law is passed a postcode may then experience a few years of mass knock down rebuilds which will make for a higher population coming in to a postcode. The local government will be capturing more council rates and spending it on the same geographic area of projects. This could result in upgraded sporting grounds, parks, libraries, and public schools, community halls and community/local disability programs; thus improving services and facilities for everyone in these postcodes.

• Negative – Say goodbye to strata cost affordability

Even if an unwilling unit owner sells their unit and finds something in a newer block that they can afford based on the payout sum offered for their current unit, they may still struggle. This is due to strata costs. In my experience older blocks, even with their sometimes expensive maintenance costs, still offer strata fees much cheaper than newer blocks. Older unit owners often pay in the realm of $300 – $800 in strata quarterly, versus newer blocks which are typically $1000 – $1500 per quarter. Pensioners and older Australians who are not working full time could suffer, because whilst they may have no mortgage overhead any more, they may struggle to repay higher strata costs each quarter.

As for my view on the law: I do not have one yet. Currently the proposals are still only speculation and it will be interesting to see if the law is passed and what the final parameters will look like.