Trouble brewing in property paradise

Finally the truth is starting to come out.  Unfortunately, the reality of what has been happening in the property market is worse than any of us could imagine.  A recent report conducted by financial monitoring firm – Mozo – reveals the extent of poor quality builds and their impact on buyers over the past ten years.

Want the video first?

Before we cover off the Mozo report . . .if you have a chance check out the  story by the ABC’s Four Corners which went to air on 19 August 2019.  The story reveals the shocking quality and dangerous buildings constructed since 2001 – watch it to ensure you don’t get caught buying a lemon.  View the story (titled ‘Cracking Up’) here.

Read on for the Mozo story.

Buyers slugged with a $10.5 billion defect bill

  • Homeowners slugged by $10.5 billion building defects bill over the past decade^
  • Mozo survey finds most new property owners plagued by building defects
  • Leaks & cracks are the most common issues faced
  • Average apartment defect bill was $6,434 compared to $5,839 for a house
  • 9% of apartment owners are still waiting for the defects to be fixed

Mozo has found new homeowners have been slugged a staggering $10.5 billion in repair costs over the past decade as poor construction standards have left them battling leaks, cracks and other problems.^

Mozo also found 100% of new and newly renovated apartment and house owners have been plagued by defects that have cost them $6,434 and $5,839 respectively.* To deal with the issues most apartment owners were slugged with special levies or had to contribute to a sinking fund.**

The findings come as regulators continue to grapple with fall out over the serious safety issues plaguing apartments in Sydney, Melbourne and Brisbane.

“While buying a bright and shiny new property might seem like a good idea, the reality for many Australians is one of costly repairs and years of remediation,” says Mozo Property Expert Steve Jovcevski.

Read on for the full report findings.

Key findings: property defects

Mozo found most apartment and house owners who purchased a new property in the past 10 years have experienced building defects.

Internal water leaks, cracking to internal or external structures, water penetration from the outside, guttering faults, tiling problems and defective plumbing were the most common problems for owners.

“Australia is in the middle of the perfect storm when it comes to building defects. A construction boom that saw some developers and builders cut corners to meet demand coupled with the weakening of regulatory oversight has seen defects rain down on homeowners,” Jovcevski says.

To deal with the issues, Mozo found 58% of apartment owners facing defects had to contribute to a sinking fund and 25% were forced to pay special levies to fund the repairs.

Most apartment repairs (57%) were completed in under 3 months but 21% of buyers had to wait up to 6 months and 9% are still waiting for the defects to be fixed.

Leaks and cracks causing stress for buyers

When it comes to apartments, internal water leaks (48%) and cracking to internal and external walls (39%) were the most common defects. Water penetration from outside (30%), tiling problems (27%), defective plumbing (21%), guttering faults (19%), inappropriately installed materials (19%) were also frequently reported.

For houses, cracking to internal and external structures (42%) and guttering faults (33%) were the biggest issues. Defective plumbing (28%), internal water leaks (25%), tiling problems (25%) and water penetration from outside (24%) were also major problems.

“Whether you are buying a new apartment or a new house you should budget for repairs for the most common defects that plague properties. Don’t assume you’ll escape these problems, because you won’t,” Jovcevski says.

Pain point: apartments not built to plan

If you think you’ll be getting what you paid for when buying off the plan, you might want to think again. 20% of people found their apartment was a different size to the plan and 8% were left dealing with the builder changing the finishes during construction.

“When you’re buying off the plan it’s vital to engage with the project and check your apartment is being built to specification at every stage of construction,” says Jovcevski.

“It’s also important not to take the developer’s word around compliance at critical stages of a development. Incredibly, in NSW a developer can select and pay for their own certifiers to verify they have met minimum safety requirements.

“The good news is if your apartment is not built to the specification you signed up for you can start negotiating. From reducing the price of your apartment and getting a full refund, if your property isn’t to plan, you should be compensated.

“That said, it’s also worth remembering that while getting a refund might sound ok, you’ve been delayed from entering the property market. If you are buying in a rising market the refund you receive won’t take into account the increase in property prices and you could be left having to find additional funds to buy a similar property,” Jovcevski says.

Price of property pain

Mozo estimates repairing building defects has cost Australians a staggering total of $10.5 billion over the past decade.

Our research found, when it comes to apartments 4% of new owners had to pay above $50,000 to have repairs done, 23% paid $5,000 to $50,000 and 74% paid up to $5,000.

For house purchasers Mozo’s survey showed 5% had to pay more than $20,000 for repairs, 68% paid up to $5,000 and 27% had to pay $5,000 to $20,000.

“Although you might think you’re bagging a bargain when you buy a new property, it’s important to factor additional expenditure on repairs into your calculations,” says Jovcevski.

Industry research 

Recent studies by industry, unions and the governments into building defects have confirmed Mozo’s findings.

A joint study by Deakin University and Griffith University looking at 212 building defect reports from NSW, QLD and VIC found that building fabric and cladding were the most common problems followed by fire protection, waterproofing, roof and rainwater disposal and structural faults.

report by the Construction, Forestry Mining and Energy Union’s (CFMEU) titled, Shaky Foundations: The national crisis in construction, found residential apartment defects including combustible cladding is likely to cost $6.2 billion to repair.

The NSW government’s Cladding Taskforce, which has been established to help address fire safety risks in relation to cladding, reported 435 buildings across the state present a high risk.

State of play 

The building boom on Australia’s eastern seaboard has unsurprisingly seen the number of reported defects increase.

Mozo’s research found that internal water leaks were the most common defects found in apartments across the country. When it comes to houses, cracking to internal or external structures was the most common defects in all states except Queensland, where guttering faults was the most common defect.

CFMEU’s report painted a similar picture when it comes to the issue of combustible cladding with 1411 apartments in New South Wales affected, 1069 in Victoria and 570 in Queensland. The rest of the Aussie states have not been spared, with South Australia having 69 apartments with combustible cladding and Western Australia 154.

What the regulators and industry say 

When the dodgy buildings in Sydney started hitting the headlines the NSW Government was one of the first to take action, introducing new guidelines in an attempt to improve the building industry. Chief among the changes is the introduction of a Building Commissioner who will act as the consolidated building regulator in NSW and have responsibility for licensing and auditing practitioners. The other changes include:

  • • Building designers, including engineers, will have to declare that the building in the plans complies with the Building Code of Australia;
  • • Builders will have to declare that buildings have been built according to their plans; and
  • • Building designers and builders will be required to be registered.

In May the Australian Banking Codes Board also moved to tighten standards by introducing the National Construction Code 2019 (NCC). The Code defines the minimum necessary requirements for new buildings and new building work. In response, the Insurance Council of Australia (ICA) claims the code alone isn’t enough as it only applies to buildings under construction and they have called for Federal government intervention.

Worries and warranties: what you’re entitled to 

Although buying a home is probably the biggest purchase you’ll make in your life, don’t assume the builder will be standing alongside you when the cracks start to appear.

Depending on which state or territory you have purchased your property different warranties apply:

  • • In NSW major defects are covered for six years and all other defects for two years.
  • • In Victoria structural defects are covered for six years and non-structural defects for two years.
  • • In Western Australia defects are covered for six years following the building’s completion.
  • • In South Australia claims can usually be made up to five years following the building’s completion.
  • • In Queensland work is covered under home warranty insurance for 6 years and 6 months but after you lodge an application for assistance under the scheme strict timeframes apply. Owners have 3 months to lodge a complaint for structural defects and 7 months for non-structural defects.
  • • In the Northern Territory you can claim for defective building work for up to 10 years. However, issues that sit outside the National Construction Code such as poor workmanship and minor cracks are not covered.
  • • In Tasmania statutory warranties last for six years from the building’s completion.

 Financing flawed buildings: what defects mean for getting a mortgage

With so many buildings experiencing defects lenders are very aware of the problems owners face. If the issues are relatively minor and can be fixed quickly at minimal cost, the defects are unlikely to impact your ability to get finance against your property in the future.

However, if you are facing major structural issues with your property a lender might see you as high risk. If this is the case the amount you could borrow against your property might be limited or you may not be able to get finance at all.

“With so many dodgy buildings hitting the headlines it’s reasonable to assume lenders will start to factor in issues with new buildings to their lending criteria. Ultimately, this could see them reduce the amount they are willing to lend new property owners,” Jovcevski says.

“But whatever the circumstances with your building it pays to compare interest rates across a range of lenders to help ensure you get the best deal possible.”

To compare, sort and shortlist home loan options, head over to our home loan comparison tool.

Building defects tips and traps 

Before you buy:

  • • If buying off the plan:
    • • Research the developer and builder
    • • Engage your own consultant to check critical stages of the development
  • • Run a body corporate records search on an existing apartment to check the minutes for any issues raised around building defects
  • • Get an independent building inspection done on the property when completed.

After you buy: 

  • • Notify your apartment’s strata manager of any defects as soon as they occur
  • • Get an independent assessment of any defects
  • • Seek remediation work and/or costs from the developer
  • • Don’t delay making a claim as builders warranty has fixed timeframe in each state and territory
  • • If your builder goes into liquidation and you are still facing repair costs make sure you disclose your debt to the administrator as soon as possible.

Notes on research

A nationally representative survey of 1,222 Australians aged 24 years and above conducted by Pureprofile between 15th and 19th July 2019 and 15th and 19th August 2019. Of the 1,222 survey 506 had purchased a property in the last 10 years. Where totals are above 100% respondents selected multiple options.

^The $10 billion figure is calculated using ABS data on the number of building completions in the last 10 years https://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8752.0Main+Features1Mar%202019?OpenDocument multiplied by the average repair bill for apartments and houses from the Pure Profile Building Defects Survey, July 2019.

*Mozo Property Defects Survey, Pureprofile July – August 2019

**Ibid, Pureprofile July – August 2019

 

 

Buy smarter = limitless ways to build lifetime income

Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property.  A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income. 

Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.

Follow us on facebook.com/CravePropertyAdvisory for regular updates, or book in for a strategy session to discuss your property questions.

Disclaimer – This information is of a general nature only and does not constitute professional advice.  We strongly recommend you seek your own professional advice in relation to your particular circumstances.

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