The property market experienced a strong resurgence in 2013. Figures released by the Australian Bureau of Statistics showed that the number of first buyers as a proportion of total borrowers fell to a record low of 12.3% in November. It appears that investors greatly outnumbered first home buyers. We particularly saw this in relation to the number of investors purchasing strata title properties being both existing properties and off the plan.
If you are purchasing an existing strata title property it is most important that you ensure that you obtain a strata report of the books and records of the strata plan of which the property forms part. These books and records are held by the Strata Managers for those apartment blocks that have appointed a Strata Manager. For those blocks that do not appoint a Strata Manager the books are usually held by one of the Executive Members of the Body Corporate. There are numerous companies that specialise in preparing strata reports and we can make arrangements to obtain a strata report on your behalf with a fairly quick turnaround. Unfortunately an appointment has to be made for the inspection of the strata records and once the books have been inspected, a written report is prepared and provided. The cost of these reports vary between $250.00 to $400.00. For those of you that do not wish to expend this amount you are free to make contact with the Strata Manager yourself and inspect the records yourself and take notes and make copies of any documents that you require.
For those of you who are first home buyers and looking to buy your first property off the plan, it is extremely worthwhile for you to ensure what government grants are available to you. In New South Wales a grant of $15,000.00 is available to first home buyers of brand new homes and apartments where the value of the property does not exceed $650,000.00. Further, when you are purchasing off the plan it is most important that you compare the pricing of new apartments in the area to ensure that you are not paying a premium for the property. You may consider obtaining a report from an independent valuer. This is particularly important in terms of finance for any off the plan purchase as loan approvals usually contain a proviso that if the property is valued below the purchase price at settlement then you would have to make up the shortfall yourself.
Whether you are an investor or first home buyer it is important that you obtain advice in relation to the Contract for Sale for the strata title property prior to the purchase of the property, whether it be off the plan, by auction or private treaty.
If a property is offered for sale by private treaty as opposed to auction, once you have decided that you are going to make an offer on the property it is advisable at that point to contact us to arrange an initial review of the contract. Normally with the purchase of a property which is being offered for sale by private treaty there is sufficient time before exchange for you to obtain your strata report, obtain legal advice in relation to the contract and negotiate any amendments to the contract before you exchange.
If you are purchasing a property which is listed for sale by auction, you need to ensure that you do your due diligence on the contract and the property prior to the auction. This would include obtaining a strata search and obtaining legal advice on the contract so that we can negotiate on your behalf any amendments required prior to the auction. Any amendments negotiated on your behalf are only applicable to yourself, should you be the successful purchaser. There are additional matters which can also be negotiated on your behalf, such as agreement to pay a 5% deposit, extended settlement or any other matters that you wish the vendor to consider should you be the successful purchaser. eg if the property is vacant the vendor may allow you access to carry out cosmetic refurbishment such as painting or carrying out other repairs that you may wish to make before settlement.
If you are purchasing off the plan there are many more issues to be considered than with the purchase of existing strata title property. These matters include the following:-
- Stamp duty. Stamp Duty laws in New South Wales allow you a total period of 15 months from the date of exchange of contracts to pay stamp duty on the purchase. The period for payment of stamp duty on an existing property is that it must be paid within 3 months of the date of exchange. If you are obtaining finance stamp duty must be paid on or before settlement.
- Off the plan contracts normally have a sunset date, which is the date that the developer agrees to complete the contract on the property, failing which the purchaser has a right of rescission. There are however usually clauses contained in the contract giving the vendor further rights in relation to the sunset clause, with such things as inclement weather etc, giving them the right to extend the sunset date.
- Annexed to the purchase contract is a draft strata plan which indicates the size of the apartment that you are purchasing together with the size of the car space (and storage space if any). It is usual for a special condition to be included in the contract which provides that should the total area of the property once the final strata plan is registered vary by more than 5% of the area of the property as set out in the draft strata plan annexed to the contract then the purchaser has a right of rescission. eg if the area in the draft strata plan is 250m2 and the final registered strata plan indicates the area is 235m2 this variation would be 6% and therefore subject to the contract you could have a right of rescission.
- Defects. Typically an off the plan contract provides that any defects notified to the vendor within 3 months of completion are to be remedied and rectified by the vendor. However if the defects are such that they are of a more serious nature and would preclude you from your use and enjoyment of the property, then the vendor may be required under the contract to ensure that these defects are rectified. We encourage our clients to raise any defects and notify these to the vendor prior to completion with a view to having those defects rectified before you settle as there is then more motivation for the vendor developer to attend to these matters so that completion and settlement can take place.
- There is usually an agreed figure for adjustment of council rates, water rates and strata levies so that these figures can be used at the time of settlement for adjustment purposes. These figures are inserted in the contract because separate rate assessments will not issue until the various authorities, including council and the Water Board, are notified prior to completion.
- A depreciation report usually required by investors is normally available for a fee of approximately $500.00.
These are just some of the issues to be considered.
All purchasers of a strata title property and existing owners of strata title property should also be aware of proposed reforms to strata law in New South Wales following release of the Strata and Community Title Reform Position Paper by the Minister for Fair Trading, Anthony Roberts, on 14 November 2013 setting out proposed reforms designed to improve strata living in New South Wales. The underlying message of the paper is that the current Strata Laws are out dated and need to be modernised and provide greater owner participation and increased accountability and transparency for easier dispute resolution and reduction of red tape.
A draft Bill giving effect to the reforms will be tabled in Parliament earlier this year.
The Carneys Property Law team will be in a position to provide more details and a commentary in the next Property article on our web site scheduled for March 2014.
Wallace Meakes is an Accredited Specialist Property Lawyer and a Partner at Carneys Lawyers.