Jonathan Chancellor: NSW government must change rules on units to restore confidence

After the Opal and Mascot Towers incidents, there are seven things the NSW government can do to improve transparency for apartment buyers. Some are simple, others the government will have to legislate, writes Jonathan Chancellor.

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The unsettling images of cracking at the Opal Tower and Mascot Towers apartment complexes has shaken our collective belief in the wisdom of taking up high-rise apartment living.

There is an understandable fear that these two calamities could be signs of further fault lines within many of NSW’s 570,000 apartments, in both the new and not so new.

The cracking, along with exterior combustible cladding concerns, have emerged despite the understandable desire by many occupants, and the industry, keen to keep the issue away from the public, and potential apartment buyer, gaze.

Unquestionably the past six months have turned off many buyers from considering their shift to strata as they witnessed the turmoil of residents, owner occupiers and tenants alike, forced to vacate their apartments for who knows how long.

Confidence in buying high-rise apartments has dropped following two incidents of cracks appearing. First was the Opal Tower. Picture: John Appleyard

Our three layers of government have appeared flat-footed since the headlines that followed the Christmas Eve evacuation at Sydney Olympic Park and again at Mascot last month.

The Daily Telegraph wrote five days after Opal Tower’s cracking that there was an urgent need for registration of engineers in NSW.

In February the NSW government promised to appoint a Building Commissioner to protect homeowners, and with its head in the sand, seems oblivious to the wider consequences of the crisis.

In the meantime amid the intergovernmental merry-go-round, the issue of certifying apartments on completion for occupancy has escalated over recent days.

Insurers have either hiked or declined professional indemnity insurance for building certifiers and other professionals including engineers and architects in the aftermath of the spotlight on building defects.

These professionals cannot secure affordable or workable insurance policies.

There’s still no Building Commissioner to keep an eagle eye over high-rise so how about an interim appointment as steps need to be taken quickly to restore confidence as there’s a huge pipeline of apartments set to be sold and then moved into over the next few years. The supply of new apartments equates to eight per cent of current stock Australia-wide.

More than ever, off-the-plan buyers need to know more about the developer, the builder, and what the finished apartments will contain.

To restore buyer confidence there’s a heightened need for the residential apartment development industry to embrace greater transparency and accountability. Any buyer previously unhappy with their lot after an off the plan apartment purchase has faced a David and Goliath battle against the developer.

Only months later Mascot Towers made headlines after the building was deemed structurally unsafe. Picture: AAP Image/Danny Casey

A crack is seen in the carpark of the building. Picture: AAP Image/Bianca De Marchi

There have been a few small legislated changes that mostly relate to the timing of delivery, the so-called sunset clauses that gave purchasers rights to keep their apartment in the face of deliberate delays by developers. But generally speaking off-the-plan purchasers have few rights, with sales contracts heavily weighted in favour of the developer.

As has been regularly stated with disbelief, consumers have more protection buying a toaster than a $1 million apartment.

This must change or sales will slow significantly.

Some are small simple obligations that good developers will embrace, while others need to be legislated by government.

1) Off the plan buyers need to know who the builder of the apartment block will be.

Currently many apartments are sold before the appointment of a builder by the developer who with sales locked in are tempted to take the cheapest construction contract to maximise their profit. Buyers should be able to cancel their purchase if the builder is not to their satisfaction after taking a good look at the builders’ prior projects. Or better still builders should be appointed to construct the development before the sales launch of the apartments.

2) There needs to be less reliance by developers on cheaper overseas products such as electrical wiring. Ditto cheap glass from overseas. Buyers in developments need to be advised the source of all products.

3) Increased supervision of concrete pours needs to occur with too many anecdotal reports of pours in the rain. While skills can be taught, it appears building sites nowadays tolerate a devil-may-care attitude in the pursuit of the wise practices of the past.

4) Developers need to supply multiple quality and defect inspections for their buyers throughout the project, rather than just on completion.

5) After the purchase there needs to be more transparency in buyers’ strata reports. Managing agents, often appointed by the original developer, appear to downplay issues within buildings leaving potential buyers in the dark on the extent of the defects.

6) The NSW Strata Building Bond, a way to rectify defective building work early in the life of high-rise strata completed after January 2018, needs to be more than two per cent of the total contract price for the building work, and needs to remain for resident access for longer than two years. There should be wider home building compensation coverage for apartment blocks of four or more stories and the government needs to establish a joint task force of industry and governments to design a program that will fund rectification works for building owners left exposed with no recourse.

7) Legislated price transparency is needed for off the plan buyers. There is a practice of developers, as times get tough, offering secret price rebates or other incentives to some buyers to convey the impression of strong sales in the block to assuage nervous naive buyers.

There have been calls for more high-rise apartments, so making changes now are critical or sales will significantly slow.

Developers also offer secret vendor finance mortgage-free periods or free payments of stamp duty too. This practice also dupes valuers and lenders who need to know the true state of pricing within the block.

Sydney’s embrace of apartment living is on show in almost every one of our 650 suburbs. But the latest upheaval is going to slow down this transition.

If action is not undertaken the construction of new high-rise will come to a virtual halt and with it the opportunity for affordable housing. CoreLogic calculates Sydney apartments are about $180,000 cheaper than houses.

Off-the-plan buyers have been vulnerable to the inaction of developers, and their selling agents, with buyers generally unable to inspect the property before purchase, and then under extraordinary duress to settle in the wake of sometimes significant justifiable concerns.

A more transparent process was needed even before the cracking and cladding calamity, setting minimum standards of disclosure and providing statutory remedies where the final property differs from what was promised.

Originally published as Jonathan Chancellor: NSW government must change rules on units to restore confidence