Exercising Caution doesn’t mean you stop buying by Alan Weiss
Buyers should exercise extra caution when considering purchases in the real estate market, especially with newly built apartments. Reports of defects ranging from water damage and cracking to more serious structural issues have made many of these properties undesirable.
In Vaucluse, for example, a newly constructed apartment building has recently come under scrutiny from building watchdogs due to alleged defects. These issues, which include water leaks and damage, have prompted authorities to order the developer to rectify the problems within a specified timeframe.
Despite some buyers’ preferences for older or detached homes, the limited supply and steep prices of such properties are pushing them towards newer apartments. However, given the prevalence of defects in these developments, prospective buyers must proceed with caution and conduct thorough inspections before making any commitments.
Buyer beware
Buyers contemplating the purchase of recently built or existing apartments must exercise additional caution and conduct thorough due diligence to avoid acquiring a flawed property, which could result in significant expenses for rectification due to defects. In Australia, research from the City Futures Research Centre at the University of New South Wales highlights the most prevalent apartment defects, including water leaks, internal and external wall cracking, exterior water penetration, guttering problems, defective roof coverings, poorly constructed fire-stopping compartments, plumbing faults, tiling-related defects, and concrete cancer.
Recommendation
It is advisable to engage a building consultant to meet with the builder and thoroughly review their waterproofing, construction protocol, and construction materials before making any purchase. Additionally, obtaining a strata report is essential for all apartment buyers. Buyers have the option to request this directly from the body corporate or seek assistance from professional building inspectors like Before You Bid.
These experts can conduct comprehensive inspections, focusing on identifying defects and persistent maintenance issues that remain unresolved. Moreover, they should review reports from engineers, waterproofing experts, and electricians, as well as assess if there have been quotations for significant works. It’s imperative to examine any correspondence between the builder, the owners’ corporation, legal representatives, and the state tribunal, as this often sheds light on any lingering maintenance issues.
Additionally, scrutinising financial records offers insights into the allocation of funds by the owners. For example, if there is a cladding issue, documentation related to it is likely to be found in the records.
Furthermore, buyers should investigate the building management and their relationship with the developer or builder, as strata managers are often installed by property developers when the development is first registered, potentially making it difficult to assess the integrity of the records.
Building inspection report
Having a building inspection report before purchasing an apartment is crucial for several reasons. Firstly, it reveals hidden defects or structural issues that may not be obvious initially, preventing costly repairs later on. Additionally, it offers peace of mind and allows for a more informed decision. Buyers must also research the developer and builder behind a development, as the developer isn’t always the builder.
Often, developers procure the site, devise the design, and then tender the project to a builder for execution at an agreed cost. However, opting for the cheapest builder can lead to compromises in quality, as they may utilise inexpensive subcontractors and materials to meet budget constraints, resulting in corner-cutting during construction. Buyers should investigate the developer’s past projects to gain insight into their track record.
Additionally, understanding statutory warranties is crucial, as homeowners have statutory warranties (6 years for major defects and 2 years for minor defects).
Residential apartment buildings
The Residential Apartment Building (Compliance and Enforcement Powers) Act 2020, effective from September 1, 2020, focuses on the construction phase of residential apartment buildings (class 2) before the issuance of an occupation certificate. It empowers NSW Fair Trading to investigate serious defects on construction sites, enabling them to issue orders to prohibit an occupation certificate, rectify building work, or halt construction if necessary.
This legislation aims to protect consumers by addressing issues related to waterproofing, fire safety, structural integrity, cladding, and other services.
For residential apartment buildings four stories or higher, developers are required to lodge a building defects bond of 2% of the contract price before applying for an occupation certificate. Additionally, developers must appoint a building inspector to report defects, with the bond available to fund rectifications if the developer fails to address them.