Category Archives: Strata

When there is not a Lot in Common

When you buy into a strata building you are, in fact, purchasing a ‘lot.’ Think of your lot as your own, small component of the larger strata plan. Typically, a lot will comprise an apartment or commercial suite and, where applicable, parking spaces and/or an outdoor area of some description.

Everything outside your lot is Common property. From your external walls to the hallway outside your front door to the courtyard and driveway, the Common areas are those that all residents and occupants have equal access to. And when you think of strata services, they typically apply to the Common areas as opposed to individual lots.

In general, owners are solely responsible for the upkeep and maintenance of their own individual lots. In the case of new buildings – where building or appliance warranties are often concerned – strata management companies may deal with individual lot owners, but by and large owners are responsible for their own individual lots. When it comes to dealing with major strata management matters, your Owners Corporation will represent you.

The Owners Corporation is the body that owners are automatically admitted to upon purchasing a lot in a strata plan. Being an owner entitles you to a share in the Owners Corporation and, therefore, a say in everything from determining your preferred provider of strata management services to who gets to use the visitor parking.

The Owners Corporation – or Body Corporate as it is more commonly known – has five key areas of responsibility.

  1. Strata Plan Insurance
  2. Maintenance of the Building and Common property
  3. Financing the Strata Plan
  4. Maintenance of the Strata By-laws
  5. Record keeping

And, therefore, it is perfectly correct that when people think of strata management they tend to think of who it is that provides for the care of the Common areas. The strata manager appoints the cleaners responsible for maintaining your courtyards and hallways. And the strata manager is the one who arranges repairs to Common property. Importantly, the strata manager also arranges insurance for the building. However, owners should note that the strata insurance does not cover their individual lot and that home and contents insurance is highly recommended.

An established provider of strata services in Sydney, Wollongong and Newcastle, Netstrata has been managing strata plans for over 18 years.

Industry Market Wrap

Based on ABS data released this week, a surge in construction activity commenced over the September quarter with the total value of work completed increasing by 12.5%. Most of the rise was driven by engineering works (up 22.6%) while the building sector saw an increase of just 0.6% in value over the quarter. Looking deeper into the figures, residential construction hasn’t seen any of the improvement with the value of construction work down 1.1% over the quarter and 3.9% lower over the year. The stronger than expected construction figures highlight the two speed nature of the economy. The value of engineering work (mostly attributable to the resources sector) was up 22.6% over the quarter and 48.9% over the year while construction activity across the non-resources sector remains pretty much flat.

The RP Data-Rismark Home Value Index results for October 2011 will be released on Wednesday of next week. The results, which will reflect market conditions pre-rate drop, are likely to see a continuation in the weak trend that has been evident since the start of the year, however recent months have seen value declines leveling. In October, consumer confidence was still low, together with a high volume of stock available for sale, low auction clearance rates and interest rates at an above average level which suggests more of the same conditions. Given that October was the last month in which official interest rates were at 4.75% before the 25 basis point cut in November, the next few months of data will be interesting to analyse to see if volumes or values show any improvement.

Thank you to R P Data for this Article

Housing and Occupancy Costs

The Last week the ABS released the results of their 2009/10 Housing and Occupancy Costs Survey which had some very interesting findings pertinent to the housing market.

Last week the Australian Bureau of Statistics released detailed results of their Housing and Occupancy Costs Survey for the 2009/10 financial year. The release has lots of good quality data relating to the household sector with the most significant finding being that renters pay a larger proportion of their income on housing costs than those with a mortgage.

The average housing costs in 2009-10 were lowest for owners without a mortgage who paid an average of $35/week in housing costs, ranging from $30/week in Tasmania to $44/week in the Australian Capital Territory. As these owners have paid off their homes, these costs are likely to relate to: rates, electricity, utilities charges and maintenance costs. Across the nation, owners without a mortgage were spending just 3.0% of their gross income on housing costs.

Owners with a mortgage were paying $408/week in housing costs with $35/week attributable to occupancy costs and $373/week dedicated to paying the mortgage. Mortgage holders in Tasmania paid the lowest amount ($279/week) while mortgagees in the Northern Territory paid the greatest amount each week ($486). Across the nation, owners with a mortgage were spending 18.0% of their gross income on housing costs.

Renters were typically paying $275/week towards their housing costs in 2009/10 across the country. The occupancy costs for renters are likely to be lower than those for mortgagees or those who fully own their home as rates and utilities are generally paid by the property owners. On a state-by-state basis there were much wider variations in these costs ranging from $178/week in Tasmania to $323/week in the Australian Capital Territory. Across the nation, renters were spending 20% of their gross income on housing costs which is a greater proportion being spent than those with a mortgage.

The survey results also showed that the vast majority of Australian’s were living in a house which they either owned outright (32.6%) or had a mortgage on (36.2%). Although 28.7% of homes were being rented, the figure ranged from 25.0% in Tasmania (the country’s most affordable housing market) to 39.5% with the Northern Territory.

Focusing on household characteristics, one family households account for the largest proportion of all households at 70.6% across the county. Interestingly, couples with dependent children (26.3%) and couples only (26.2%) account for an almost equivalent proportion of all households. Lone person households account for almost a quarter of all households (24.5%) while group households (3.3%) and multiple family households (1.7%) account for a small overall proportion.

Detached houses are still the dominant dwelling type across the country, accounting for 78.6% of stock with semi-detached properties (10.4%) and units (10.7%) each accounting for around 10% of overall housing stock. Separate houses are least prevalent in New South Wales (73.7%) and most prevalent in Western Australia (86.0%).

Across the nation and across all ownership types, just 5.5% of households are paying more than 50% of their gross income on housing costs. Without delving deeper into the results you’d anticipate that this would be the result of owners with a mortgage however, only 6.9% of owners with a mortgage spend more than 50% of their income on housing costs compared with 9.1% of renters.

Most measures of mortgage stress suggest that if you are spending more than 30% of your take home income on your mortgage you are in mortgage stress. The results of this survey suggest that in June of last year 23% of home owners were in a position of mortgage stress.

The results of this survey are quite interesting and it is disappointing that the ABS only undertakes the survey every two years. The most interesting finding is that renters are paying a larger proportion of their income towards their housing costs than those with a mortgage. This is reflective of the fact that mortgagees are typically earning more than those renting but it also highlights that as mortgage holders pay down their debt they are probably looking to refinance to pay less on their mortgage. This would have been increasingly occurring over the past 12 months with the volume of refinance commitments rising substantially.

The other particularly important finding which is inter-related was the fact that the vast majority of owners with a mortgage were paying less than 25% of their income on their housing costs (66.4%). On the other hand, only 6.9% of mortgage holders were spending more than 50% of their income on housing costs.

Thank you to R P Data for this Article

The Strata Managers Role in Owners Corporation Budgeting

Budgets must be prepared annually for the administrative and sinking funds: ss. 75(1) and 75(2).

Administrative fund budgets estimate how much money the owner’s corporation will need for Actual and expected expenditure:

  • To maintain in good condition on a day-to-day basis the common property
  • Personal property vested in the owner’s corporation
  • To provide for insurance premiums
  • To meet other recurrent expenses

Recurrent expenses includes regular expenses such as insurance excesses, water charges, electricity, carpet cleaning, lawn mowing and minor expenses relating to maintenance of common property. In budgeting for administrative expenses, strata managers need to keep track of any likely abnormal increases in expenditure. Recent examples include the exorbitant

The sinking fund budget is required to estimate how much money the owner’s corporation will Need for actual and expected expenditure for:

  • Painting or re-carpeting buildings or other structures on the common property
  • Acquiring personal property
  • Renewing or replacing personal property
  • Renewing or replacing fixtures or fittings that are part of the common property
  • Replacing and repairing the common property
  • Meeting other expenses of a capital nature

In estimating amounts to be credited to the sinking fund, an Owners Corporation must take into account anticipated major expenditure identified in the 10-year sinking fund plan required by s.75A. The idea of the 10-year plan is to force owners of the day to pay progressively for their use of the common property. The Act permits the owners corporation to engage expert assistance in the preparation of the plan but does not oblige the owner’s corporation to use an expert. A recent study has shown most owners do not use experts: Where plans are prepared externally and an Owners Corporation decides not to levy in Accordance with the recommended plan, there should be a good reason. Many sinking funds are underfunded and it is possible that a new member of an owner’s corporation might sue the owners corporation for not having properly funded their sinking funds before their period of ownership. Strata managers might be liable on this account as well.

Thank you TEYS Lawyers for this Article

The Strata Managers Role in Owners Corporation Finances

One of the basic responsibilities of an owners corporation is to raise and manage fees and to Keep track of its finances. A strata manager has an important role in assisting the owners corporation to budget for their expenses, levy contributions, collecting levies, spending the funds in an authorised way and accounting to the general meeting each year on finances.

  1. Budgeting correctly for contributions to the administrative and sinking funds;
  2. Accurately levying contributions to the administrative fund and sinking fund;
  3. Collecting unpaid levies efficiently;
  4. Expending funds only on authorised expenses; and
  5. Preparing financial statements.

Thank you TEYS Lawyers for this Training Note