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Buying a unit can have its advantages but investors need to be careful and consider the cost of levies into their purchasing decision.
If the levies seem too good to be true, Archers the Strata Professionals partner Grant Mifsud said in reality they probably are.
In strata complexes, unit owners are required to pay levies on a typically quarter basis in order to cover various obligations, such as repairs, insurance, common area facilitates like lifts, pools and gyms as well as sinking fund costs.
“Buyers, particularly if it is a new property, should consider if the levy cost disclosed to maintain facilities and put aside for long term sinking fund costs are realistic,” Mr Mifsud said.
“It’s worth comparing disclosed levies to a property that has similar services, build type and age then scale to the one you are looking to purchase to get a realistic comparison about the levies connected to the property.”
He highlighted the usefulness of sinking funds, expressing that this underestimated cost can help in keeping levies low in the short term.
“This fund is essential for future capital cost planning and pays for long-term capital upkeep such as repainting, lift refurbishments, carpet replacement or road resurfacing. While these costs can vary over time, the sinking fund is expected to have enough money put aside to cover them. If not, a special levy must be raised to cover the cost in addition to regular levies,” Mr Mifsud said.
For the longer term, Mr Mifsud recommended using a quality surveyor, who is able to create a report and forecast any long-term costs for the complex, which can include allowances for inflation.
“For new buildings, body corporate legislation does not require the sinking fund report to be provided until the first annual general meeting which can be up to six months from registration,” he said.
“This means that there may not be a full report prepared by a quantity surveyor when the original levies are disclosed and can lead to levy increases once the report is prepared in order to reasonable budget for future capital expenses.”
Mr Mifsud warned that, by ignoring budgeting and not accounting for administration and sinking funds, levies can financially impact present as well as potential owners, especially if there are known issues to address and no funding to fix it up.
“A solid program of maintenance planning, good recordkeeping, reporting and realistic sinking fund forecasting are all important tools for maintaining adequate levies,” he said.
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