First-home buyers facing financial ruin after Victorian apartment builder goes into liquidation
The young homeowner thought she was setting herself up for the future but now she is trapped in a debt prison with no escape in sight.
EXCLUSIVE
Stephanie Webb thought she was setting herself up for the future when she managed to achieve the Great Australian Dream of owning a home at the age of just 24.
Her father Darren agreed to act as guarantor on the loan and she managed to nab a one-bed apartment in West Footscray, in Melbourne’s inner west, for $310,000 in 2019.
But unbeknown to her, the four-storey apartment block was riddled with defects.
Several independent building reports found that the builder, Shangri-La Construction, had installed inadequate waterproofing, used combustible cladding, had built unsafe fire exits and a lift that was not up to standard.
Residents had begun a lawsuit against Shangri-La Construction when the building company went into liquidation at the end of March.
This has left the 77 apartment owners, including Ms Webb, with no way to recover the money needed to carry out the rectification works, leaving them to foot the $4.5 million bill themselves.
Now 28, Ms Webb is paying more than $10,000 yearly in strata fees, on top of her mortgage.
“I’m realising I’m kind of screwed,” Ms Webb told news.com.au. “My loan is split into two. The majority is on a fixed rate which ends in October. I’m also sh*tting myself about that.”
Currently, buildings three storeys and above are not required to be covered by Builders Warranty Insurance under Victorian law.
That means if a builder goes bust – as in the case of the West Footscray apartment – residents have no insurance to automatically cover building defects.
It matters because 2.5 million Aussies live in an apartment, and half of those people reside in a block of units that is more than three storeys high.
Although this blindspot in the law is nationwide, the Victorian Government is currently looking to reform laws in its building sector. You can sign the petition here.
‘How can the government allow this to happen?
When Ms Webb purchased her flat, her quarterly strata fees were just $470 at the time and there was no indication of any major defects on the premises.
“As far as I knew at the time, I was buying a reasonable place. A few years later I realised I purchased a bit of a lemon.”
Calling it a ‘lemon’ is putting it lightly; her strata fees have since skyrocketed to $2235 a quarter, which is more than $10,000 a year.
“All my savings from the age of 17 went into this property,” Ms Webb added. “You work hard for something like this, it’s really upsetting.”
The young homeowner said she hadn’t managed to put aside any money into savings and that’s even with her mortgage on a fixed rate.
“How can the government allow for stuff like this to happen?” she asked. “How did this stuff get ticked off?”
The Victorian Building Authority (VBA) declined to comment when contacted by news.com.au citing the fact these issues were not in their remit.
When news.com.au contacted Maribyrnong City Council, their CEO Celia Haddock said: “Any concerns relating to a builder’s or building surveyor’s conduct will need to be referred to the Victorian Building Authority for review in accordance with their role as the building regulator in Victoria.”
It does not appear the building was inspected by any regulatory body prior to allowing residents to move in.
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‘What do I do, dad?’
Ms Webb’s father Darren is also in anguish, powerless to do anything to help his only daughter.
“It kills me, it really kills me,” he told news.com.au. “I think we brought Steph up the right way, at the age of 24 she bought her first property.”
But now the loving father can do nothing but look on as his daughter flounders.
“To have her on the phone in tears saying ‘the body corporate fee has more than doubled, I can’t sell the place, what do I do, dad?’ I had no answer for her.”
During that period of time, Ms Webb had lymphoma cancer and it was “just sh*t” according to her father.
“I try my hardest to do everything I possibly can for her but my hands are tied. I just don’t know what I can do,” Darren lamented. “I’ll help her, whatever it takes.”
Darren blames the VBA as the regulator for allowing residents to move into the building without carrying out their own checks and relying on the word of the building surveyor.
“I was very proud of her. We did all the due diligence, we had solicitors look at Section 32 (and) had the place independently inspected,” he added.
It’s a sentiment echoed among other first-home buyers who feel frustrated they bought into the West Footscray block.
Andrew John, 32, told news.com.au he felt like “one of the last suckers” who moved into the block through his $415,000 purchase.
“I feel like we’re 77 families of suckers, bent over every possible corner,” he said. “Our properties have gone down $50,000. We were originally excited (but now) everyone hates it here.
“We’re victims of the VBA’s decisions. We’ve been swept under the rug.”
Maria de Leon, 29, bought the apartment for $390,000 after a personal tragedy but now deeply regrets that decision.
“My mum passed away. I used what was left of her life insurance – that was my deposit,” she told news.com.au. “We were renting the same place for 14 years. She (my mum) really wanted to own her property.”
Ms de Leon’s quarterly strata fees have climbed to $3000.
“Every three months I have to deal with a mental breakdown,” she said whenever receiving notice of her strata bills.
“I didn’t save at all last year. I was eating into my savings,” she lamented.
In another blow for the new homeowner, Ms de Leon works as a 2D animator and is unemployed as her contract ended. She has been unemployed for two months.
How did the building receive all its compliance certificates?
Rachel*, who previously spoke to news.com.au detailing the extensive defects in her unit, was also a first homebuyer at the block, buying the apartment just before her 40th birthday as a degenerative condition worsened.
“I have to say that I‘m really pissed at the VBA (Victorian Building Authority),” she said.
“When I bought the place in 2014, I had compliance certificates stating that it was all fine.
“I guess I accept that there are dodgy builders. I‘m not a builder, I only know so much. The VBA really had an obligation to establish whether it was compliant.”
It turned out to be far from compliant – rain water leaked into her apartment so badly that her apartment was deemed uninhabitable and she has since had to move to rural Victoria, the only place she can afford, while she waits for the problems to be fixed.
A defect report obtained by news.com.au dated December 2018 found that Shangri-La Construction’s waterproofing job in the block was woefully inadequate, including having no waterproofing membranes on any of the 77 balconies or the carpark, and having incorrect flashings in the windows.
“I believe that no provision has been made to install adequate waterproofing,” the report states.
“The construction of the waterproofing of the building has not been carried out in accordance with the requirements of the National Construction Code. Therefore the builder has a responsibility to correct these defects.”
Unfortunately, with the builder in liquidation, it’s fallen to residents to pay for the workmanship to be rectified.
Jessi*, a teacher, has also had a nightmare with the defects, and has since moved elsewhere but has struggled to get renters into her property.
Underneath her balcony “it looked like fungus, it was wet (and) smushy, then when it dried it turned to a grey mouldy colour,” she told news.com.au.
“I cried about it.”
Like many of the residents, it was also Jessi’s first experience in becoming a property owner, and she also thinks the building should have been better inspected before she was informed it met all necessary standards.
“Because it was my first ever involvement in anything property-wise, you’re not ignorant, but you trust the people that you speak to,” she said.
“You put faith in other people.”
Garry Potter, 63, says none of the 77 apartment owners would have moved in without the building authority telling them it was a safe place to live.
“The government should pay for it,” the resident said.
“I don’t see why I should have to pay for a problem made by Shangri-La Construction.”
The petition
Samantha Reece, CEO of The Australian Apartment Advocacy, has started a petition calling for the government to expand the last resort insurance scheme to include apartments of any height.
“We want insurance protection to be equitable whether you buy a single storey house or on the 33rd floor in an apartment building,” Ms Reece told news.com.au.
Currently, 2.5 million people live in an apartment, and half of those people reside in a block of units that is more than three storeys high. An academic report from 2019 found that a whopping 85 per cent of all Australian apartment buildings analysed had at least one defect across multiple locations.
Earlier this year, the Victorian government pledged to reform its building industry laws to tighten consumer protections in light of the collapse of major construction firm Porter Davis Homes, making Ms Reece hopeful that the three-storey law might be abolished.
Shangri-La Construction went bust on March 31 this year, with David Coyne of insolvency firm BRI Ferrier appointed as liquidator.
There are 10 residential apartment blocks, including the Footscray one, that were in various stages of legal actions when the company went under.
One single claim for a block of units was for $10 million worth of damages, at a different location.
“The proceeding concerns a complex construction dispute between the applicants (an owners corporation and a number of individual lot owners) who seek damages from Shangri-La and nine other respondents in relation to alleged defects in a major residential development,” the court document read.
Although court cases usually end once a company enters liquidation – as in the court’s eyes the company has ceased to exist – many are seeking leave to continue the proceedings.
Among those continuing to pursue Shangri-La Construction is the Victorian government because of substantial bills racked up during the process of replacing the dangerous cladding installed within buildings.
Cladding Safety Victoria, a government body established to fix cladding issues, told news.com.au that of the 365 buildings approved for funding so far, 16 are buildings where the original builder was Shangri-La Construction, of which the total funding committed was just over $24.5 million (excluding GST).
According to the liquidator’s statutory report into Shangri-La Construction, there was only $18,000 left in its bank account while the company’s assets have been sold for $146,00.
Unsecured creditors — like all the apartment owners in the West Footscray building — are not expected to recover a cent.
But according to a media report in 2015 on Shangri-La Construction, the business turned over $120 million worth of building work every two years.
When defects emerged at the West Footscray block, the building was still within its warranty period.
The director of Shangri-La Construction declined to provide a comment to news.com.au, as relayed through their solicitor.
More Coverage
The Victorian Building Authority confirmed to news.com.au that investigations into Shangri-La were ongoing.
* Names withheld
alex.turner-cohen@news.com.au
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