We’ve been asked about how to reduce strata levies and also why levies are so very high on some buildings. Rod Smith, The Strata Collective provides the following response.
Question: How can strata levies be over $1,000 per quarter when there is no elevator, gymnasium, swimming pool or children’s playground?
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Why are strata levies so high? I’ve been a homeowner before, but I’m thinking of buying a unit for the very first time. I’m puzzled by strata levies. Some of the new two bedroom units are selling for $400,000 but the strata levies are over $1,000 per quarter.
I can understand why they’re charging so much when there’s no elevator, gymnasium, swimming pool or children’s playground.
In my experience, a new building usually has no problems until it’s around 12 to 20 years old. Can you please explain why the hefty charge for strata fees?
Answer: If you’re buying a brand new apartment and the agent says, “Oh, it’s got the lifts, a pool, a gym and it’s only $500 a quarter for the levies”, something is amiss.
In new buildings, the average for a two bedder in terms of levies in Sydney, and I discussed this with a property manager who manages over 20,000 properties in their businesses, is around $820 to $850 per quarter.
So then you can work backwards from there. If it’s less, great. If it’s more, you need to understand why. There’s valid reasons in almost all cases. You need to understand what you’re buying. And you may need to look at not just one apartment but a variety of apartments that fit your requirements.
For a two bedroom, newer style apartment, the days of the $500 a quarter levies are pretty much over. If you’re buying a brand new apartment and the agent says, “Oh, it’s got the lifts, a pool, a gym and it’s only $500 a quarter for the levies”, something is awry, something is amiss.
So you need to do your own homework on similar comparable buildings, and what’s covered. Behind every number is a budget and an explanation even on a new building. The strata manager will put together a draft budget, but I’ll give you some high level numbers about how we budget for brand new buildings.
So for electricity, it’s usually $300-$400 a lot per annum, but it’s less if they’ve got LED lights. For water, it’s similar $300 to $400 per lot per annum. But it’s about half of that, if it’s individually water metered. Lifts are about $6,000 per lift if it’s a low rise, but it can go up to 10 to 12 if it’s a high rise city building, and we do manage high rise city buildings in our business. And fire usually, for a block of 50 it’s usually around $5,000 a quarter.
So you start paring some of these numbers back and you can start to see where things arise. So when we take on a building, we usually do a bit of a sensibility check around what they’re paying, and why. To see if anything looks amiss and advising.
But my advice to that person who’s looking at buying an apartment – look at a few, work out what you can afford. If the apartment’s cheaper than other comparatives, because the levies are higher, that happens in property. If your running costs are higher, often that will impact the sales price because that gets reflected up front. But with a brand new building, you should be able to set it up in a way that’s quite cost effective. So that everyone gets good results.
A $1,000 a quarter for a $400,000 apartment, that might not be achievable for that owner, but they’ll need to have a look at that. Have a look at a few apartments and look at the references and the reputations of the developer and the builder as well. Just to make sure you’re buying a good product.
You’ve got two funds in Australia. You’ve got the administrative Fund and the capital works fund. Your administrative fund is the things that I’ve just discussed, which are the day to day things, your water, electricity, cleaning, a gas, all those things that happen regularly, month by month, and the maintenance contract lift if you’ve got one pumps, garage door, those sorts of things. So all those contracts they are from the administrative Fund, the day to day.
However, you’ve got a capital works Fund, which is essentially like your savings account. So you’re saving up today for repairs that will come up in the future years. Things like painting should be done every seven to 10 years depending on the quality of the original paint job and that’s usually the biggest ticket item for most strata buildings. That can range into the hundreds of thousands of dollars, if not more, so you need to be chipping away each year. The act in New South Wales now says you have to have a planned 10 years. You also have to review that plan every five years.
So you need to work out what expenditure is coming up. 98% of the buildings that I’m involved with have someone independent and expert in this area. It’s a trade, much like the same as electrician or a strata manager. There’s people that do the plans, the capital works fund plans and they do a lot of them and they’re quick, they’re very good at it. And it gives you the baseline on what your strata will be expecting to spend over the next 10 to 15 years.
So what happens if you strata levies are really low? I just walked out of a budget meeting with one of our buildings that’s just about to spend $2.1 million on their facade. They had to increase their levies more than double. So their levees have been up around the $4,000 to $5,000 per quarter mark for the last three years. They did a lift upgrade, they did a facade. So that was due to problems in those first 10 to 15 years, not raising enough money. That’s now come back to haunt them. The good news is we’ve got enough money, which is a beautiful thing, to do all the things that we need to do. So you are likely to have problems in years 10 to 20 because lifts have a 20 to 25 year life before they need to have a major renovation and most of those major lifts, renovations are in the order of $250,000 to $375,000 per lift. So if you’ve got five lifts, and you’ve got $300,00 in the bank in year 20, it’s going to be a difficult conversation at the AGM.
This post appears in Strata News #374.
Question: Can I do the mowing for my common area garden and take the cost of my lawn maintenance off my levies?
I am one of the lot owners of a small strata scheme. I’d like to do the mowing for my garden area. Can I do this without Owners Corporation approval?
If they agree I can mow, can I deduct the cost of my lawn maintenance off my balance and reduce my strata levies?
Answer: Any cost savings won’t reduce the levies you pay as the lawn mowing contract is with the owners corporation as a whole.
Regarding mowing your own lawn area, this would be a matter to discuss with the Strata Committee. They may allow you to do this work if you are interested and can commit.
Unfortunately, any cost savings won’t reduce the levies you pay as the lawn mowing contract is with the owners corporation as a whole, not each owner.
You may save money for the owners corporation which would pass down to you indirectly, however, it wouldn’t be dollar for dollar, it would your respective proportion if the strata can negotiate a cost saving with the lawn mowing contractor.
This post appears in Strata News #251.
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Rod Smith
The Strata Collective
T: 02 9879 3547
E: [email protected]
This article is for reference purposes only and is not intended to be a comprehensive review of the developments in the law and practice or to cover all aspect of the subject matter. It does not constitute legal or other advice and should not be relied upon this way. Readers should take legal or other advice before applying the information containing in this publication.
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