Rules around body corporates need tightening before a
whole new generation of Auckland apartment buyers are burnt by poor
disclosure, inadequate maintenance and dodgy building quality
18 September 2016
If everything goes according to the Unitary and Governmental plans,
Auckland is about to embark on an apartment building spree like it has
The Unitary Plan eased the rules so a lot more apartment buildings can
be built on a lot more land in and around the Auckland Central Business District (CBD). Assuming no
major legal hiccups, the Unitary Plan will go live this weekend, in
theory unleashing a wave of apartment and town-house development.
Even Prime Minister John Key is encouraging first home buyers and
others to buy apartments, given they are relatively less expensive than
stand-alone homes in Auckland—at least on the face of it.
There are plenty of nerves around though. Investors have always been
wary of apartments, given the legacy of leaky buildings, body corporate
(condo corporation) problems and surprisingly big bills for maintenance
and insurance that get tacked on to body corporate fees.
The problem with apartments
The surge in demand from investors in recent years for 'sausage flats'
on sections, or for simple houses on big sections reflects that lack of
confidence in apartments and townhouses in larger complexes. Investors
can see the real money to be made is in the appreciation of land
prices. They have quintupled in Auckland since 1996. The problem with
apartments for investors, and increasingly for owner-occupiers, is that
there is not enough land built into the price to get the necessary
appreciation to create the necessary tax-free capital gains. The
problems with lease-hold land have also repeatedly undermined
confidence in apartments.
The Government passed the Unit Titles Act in 2010 with the aim of
making it simpler and cleaner for apartment buyers, but there are
concerns the way it is being operated could restrict the demand for
apartments and potentially alienate a whole new generation of
buyers—including those taking up the suggestions of the Prime Minister.
Before the passing of the Unitary Plan, a group of experts on the laws
around apartments and how body corporates operate proposed a range of
legislative and other changes to improve confidence in the sector in
the long run, and Building and Housing Minister Nick Smith has said
this month he is seriously considering tweaking the regime for
apartments. He acknowledged the Government had not focused enough on a
The Unit Titles Working Group, which includes the Auckland District Law
Society, the Home Owners and Buyers Association (HOBANZ), Crockers and
the Real Estate Institute of New Zealand, proposed changes to Smith in
May that would include much clearer disclosure for buyers, tougher
regulation of body corporate managers and a new Ombudsman scheme for
dealing with disputes.
HOBANZ Chief Executive Roger Levie says many apartment buyers only get
a limited amount of information about how the buildings are being
managed before they sign on the dotted line. Often they don't have a
clear idea of the body corporate's repair and maintenance plans or its
finances. Many body corporates under-spend or under-plan for repairs
and maintenance in an effort to keep fees low and attract buyers and
investors, but that can mean buildings can need expensive repairs at a
"It's only once you're in a contract than you can then start to get
some of the additional information, and often that's too late," Levie
"The long term maintenance planning regime that was introduced under
the old act is really not being followed by the body corporates because
they don't want to spend the money to get the right sorts of building
consultants involved to assess their building, and they don't want to
face up to the significant costs they have building up for proper
maintenance," he says.
Levie is proposing the full maintenance plans and body corporate details are available to buyers before they sign contracts.
"When they make their purchase and then find two years later they're up
for a couple of hundred thousand dollars to contribute to a re-clad of
a building, there's going to be litigation flying and we're already
starting to see it," he says.
it's ruining peoples' lives
"We've seen the fallout across the leaky and defective properties and it's ruining peoples' lives."
The Working Group also suggested Smith look at adopting a
Queensland-style system where an Ombudsman adjudicates on disputes,
rather than the current system where complainants are eventually forced
to go the District or High Courts. For stretched first home buyers, a
court action can be intimidating and prohibitively expensive.
Apartments can be part of the solution to Auckland's housing supply
crisis and can be a foot on the ladder for a generation locked out of a
traditional house on a section, but the Government will have to heed
the warnings and take up the proposals for better regulation to
reinforce and build confidence in these homes for decades to come. A
failure risks adding insult to injury for an already struggling cohort
of home buyers.
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