How to navigate the minefield of buying apartments and townhouses
Alan McCulloch, former mayor of Auckland's East Coast Bays and these days on the local Grey Power committee, has a simple piece of advice for people considering apartment living.
"Don't buy anything that's built after 1992," he says bluntly.
McCulloch has been supporting owners in the Bay Palms complex at Browns Bay which, like so many other buildings of its era, is leaky.
These older people sold their family homes and downsized into what they thought would be worry-free living in the heart of the bustling beachfront village, he says.
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But a year ago they got the heartbreaking news that the development has weathertightness issues. The 63 owners will be required to pay between $60,000 and $100,000 each to fix the problems, and move themselves and their possessions out for around four months.
"A lot of them are pretty old and have really put everything into their apartment, and they just have enough left to live on, a little bit over. But they don't have $100,000," McCulloch says.
The Bay Palms was built in 2004 and the apartment owners did everything right, he says. One had worked in the building trade and went over the place with a fine-toothed comb before purchasing.
Is McCulloch's comment about post-1992 buildings fair? The Home Owners and Buyers Association (HOBANZ) which deals on a daily basis with complexes such as the Bay Palms says yes, broadly it is.
Anything constructed from the early 1990s to the mid 2000s should raise red flags, although some residential developments built prior to that are also failing due to insufficient earthquake strengthening and lack of maintenance, chief executive Roger Levie says.
"The antennae are up for different things.
"But in general the buildings that were constructed in that period are not going to perform in accordance with the building code," he says.
Statements such as Prime Minister John Key's famous advice that those trying to get onto the property ladder should lower their expectations and buy apartments make an apartment their first home are irresponsible without explaining the risks, Levie says.
"We think (the government comments) are totally unrealistic and very dangerous, because many of these apartments are not what they're cracked up to be."
It's imperative those thinking about buying an apartment or townhouse understand the risks and complete a thorough assessment of the history and current status of the complex, so they know what they're getting themselves in to.
They also need to accept that the construction is only required to last for 50 years, Levie says.
"They are purchasing with an expectation of low maintenance and low cost living, and it's just not realistic that any of these buildings are going to perform unless they're properly maintained."
HOW-TO GUIDE TO BUYING APARTMENTS
Buying into a multi-unit complex can feel akin to entering a minefield, but the experts say there are ways to navigate it.
Here are 10 key things to look out for when considering buying an apartment or townhouse.
1. Disclosure, disclosure.
As a prospective purchaser you must be given a pre-contract disclosure statement containing details such as the annual body corporate levy, funds held by the body corporate, upcoming maintenance on the complex, and whether it has any weathertightness problems. Before settling on the property you get another disclosure statement covering things like any fees and charges relating to the unit and whether there are any proceedings pending against the body corporate.
2. And more disclosure
On top of that you can ask for additional documents, such as minutes from body corporate meetings and information on insurance. The seller is entitled to charge you for this, but HOBANZ's Roger Levie says beware if the charges seem extraordinary. "We're seeing charges up in the thousands of dollars, and that's being used to try to put people off from getting access to information," he says.
3. Sanitised body corporate minutes
Bodies corporate have a tendency to keep things out of their meeting minutes that may reduce the attractiveness of the property, Levie says. That's why it's important to get copies of the minutes, the financials and the budgets going back three years. "One of the things that often gives away issues is the details of the payments," he says. "Often you'll see payments to companies that we would recognise as being involved in weathertightness… But there's no sign in the minutes of what that sort of thing was about."
4. Upcoming general meetings
If a unit goes on the market just before an extraordinary general meeting or an AGM at the complex, ask why the owner is selling at that time. There could be looming issues that they're aiming to avoid.
5. Check there's an adequate Long Term Maintenance Plan (LTMP)
The law is weak in this area, HOBANZ says, because while it requires complexes to have a LTMP it only has to be for a minimum of 10 years, and it doesn't have to be funded. A decade is not long enough because most of the big ticket items such as the roof or the cladding won't need replacing within that time, Levie says. Owners should also be contributing to an accumulated fund so that the cash is there when this work needs doing. If there aren't adequate funds for maintenance going forward it means new owners are purchasing a liability.
Those buying units off the plans also need to aware that what the developer says will be the annual levy is unlikely to include contributions to a LTMP fund, so the true cost of running the building is going to be much higher.
6. And if you're buying off the plans
As house prices continue to skyrocket particularly in Auckland, securing a property while it's still in the pipeline is tempting. But lobby group Consumer says get excellent legal advice first. Check if there have been any problems with other projects the developer has done, and find out if it has the necessary resource and building consents before paying anything. Check your contract has a "sunset clause" which allows you to cancel and get your deposit back if the developer hasn't made sufficient progress within a certain timeframe. Also look out for "entire agreement" clauses which are usually designed to prevent you from relying on anything you were told by the sales rep. Make sure final payments are tied to the developer getting a Code Compliance Certificate for the completed development.
7. Who's supplying your broadband
Some developers set up related companies and require owners to buy all their power and other utilities through this provider, or use the developer's letting agent if they want to rent their apartment out. The developer, who is clearly clipping the ticket on the way through, will argue they've negotiated the best price for owners. But this significantly curtails your consumer choice, HOBANZ and Consumer warn.
8. Check the insurance policy
Many multi-unit complexes are under-insured, HOBNZ says. In most cases where it's brought in a quantity surveyor to check the property - as opposed to a valuer - the true replacement value has turned out to be significantly greater than the amount the building is insured for, Levie says. "That issue caught a lot of people in Christchurch."
9. Shaky ground
Check the seismic adequacy of the building, particularly if it's a conversion. Recent redevelopments are probably okay but ones done 10 to 15 years ago may not be up to scratch, HOBANZ says.
10. Leaky buildings - how do you tell?
This is literally the multi-million dollar question. Apart from the obvious of considering the era of the building - early 1990s to mid 2000s is the danger zone - and getting a property inspection done, there are often clues in the body corporate minutes. Problems with individual units which are pushed back to owners to deal with is one sign, Levie says. "You'll quite often see discussion about maybe a deck that's leaking, and it would be portrayed as an isolated issue for one unit. Where you see that happening, or what looks like targeted work going on, that generally should raise a red flag."
- Sunday Star Times