Strata law changes will have a big impact on the residential market in 2014

As we start to reflect upon 2013 and the last six months in particular, there are signs that 2014 will be another busy year, partly because in NSW changes to strata law and planning legislation will impact the residential market and apartment projects and buyers in particular.

While there will also be some big-picture economic hurdles I would like to briefly update these two important reforms. After extensive consultation NSW Fair Trading has now released its position paper on strata title law reform and a final bill is due to be introduced in early 2014.

As might be expected for such a complex topic there are approximately 70 proposed reforms.  It is of interest that most are consumer driven, designed to benefit all occupiers of strata schemes, owners and tenants. The reforms also aim for greater transparency and accountability in the management of strata schemes impacting committee members, how proxies are used; and the disclosure of third party interests and connections.

However for future developments the reforms seek to impose major and significant obligations on developers, giving owners greater rights, but also they will impose additional costs and liabilities on developers.

One big change will be a requirement for a developer to commission an independent defects report between 12 and 18 months after the occupation certificate for the building has issued. Another much talked about change will see developers of high rise strata buildings (more than three storeys) required to pay a bond or provide a bank guarantee equal to 2% of the contract amount for the construction of the building. This obligation for developers is a significant new obligation with cost consequences for developers. It is not yet clear if this obligation will apply to existing projects that have already commenced construction.

Generally maintenance is a core concern and all developers will be required to prepare a maintenance schedule aimed to help an owners corporation understand how to best maintain the building. Owners corporations will have the right to take action over unrealistic strata levies during the initial period where under some circumstances an order to pay compensation could be awarded against the developer. Future project planning and financials will need to allow for these new costs.

The collective sale and extinguishment of strata schemes

As greater numbers of older strata buildings become ripe for re-development the extinguishment of those schemes has become an issue. There are some areas where less than perfect projects were built in the 1960s and 1970s and these areas need to be updated. The position paper now provides the detail on how this is to be facilitated for the termination of strata schemes.

It is interesting to note that since 1961 only 826 strata schemes have been terminated out of a total of 72,000.  To help avoid excessive costs and delays the proposal is to legislate for a new and simpler process, which an owners corporation can follow with disputes under the Land and Environment Court. Apart from these few key items the reforms are far reaching and will affect much of the property industry and the apartment market will be impacted.

No smooth sailing for planning reforms

After widespread dissatisfaction and negative community feedback the NSW government will undertake further consultation before the NSW Parliament reconsiders the new planning bill in 2014. Debate on the bill was deferred by the NSW Legislative Assembly on 28 November 2013, until next year.

While the NSW government is committed to delivering a new and modern planning system that also allows quicker decisions to be made and hopefully provides more housing, the legislation remains ‘stuck’ after more than two years of policy development.

Given the importance of creating more housing in NSW and the big impact that will have on the local economy, it still looks like mid-2014 before these important issues are resolved, creating doubt for both the development industry and the wider community.

In NSW these are two issues we need to keep a keen eye on, while at a federal level the government’s review of the tax system in 2014 may well throw up some other, possibly bigger issues that could soon be impacting development and investment, with the promise that no areas will be ‘off limits’ to the review.

Peter Chittenden is managing director for residential of Colliers International.



Peter Chittenden

Peter Chittenden

Peter Chittenden is managing director for residential of Colliers International.

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