Are high strata levies an instant dealbreaker?

I am looking to purchase an apartment to live in. The apartment has a strata levy of around $1900pq. Similar apartments in the surrounding areas are closer to $950-1000pq, so it's considerably higher than normal.

I asked the agent what the strata levy is being applied to and he said that the OC preferred a pro-active approach to raising money for scheduled works. I had a look at the OC's 10-year capital works fund plan in the strata report which indicated that the OC intends to replace common property at the estimated cost of $200k in 2025. After this, the OC plans to reduce the levy to around $1100pq, which would be acceptable to me. I did not find any evidence structural issues in the strata report.

The apartment appears to be very well maintained for an older-style building, so I do believe the agent when he says the OC is pro-active. However, obviously there's no guarantee that the 10-year capital works fund plan will be accepted and followed. I don't want to be paying $1900pq indefinitely.

Would you be turned off of this property because of the strata levy?

 

Depends on what the apartment is worth and what it could otherwise be rented for as to whether $1900pq (circa $150pw) would deter me.
Personally I would base it on those metrics rather than other apartments in the area as it would he difficult to get an apples-apples comparison.

 

I'd estimate apartment is around low 800k? Rental yield maybe around $450 a week (although I intend to live in the property).

 

All a matter of opinion of course but if the levies do go back down I would be happy enough.

If they didn't however then thats a different story as it would probably just be cheaper to rent than buy (which is pretty typical of the places I do rent).

 

Its a good thing. Its seems a planned issue. A known shortfall for catching up. All property needs maintenance. Some startas struggle to get people to pay let alone increase it and do the essential maintenance. And when the place needs really essential maintance its also a struggle.

 

I'd review the strata records for any nasties, including email correspondence where those nasties can have a bit of colour not seen in meeting minutes. Check the balance of the admin and sinking fund.

Then you can do your own forecast of what you think strata should be based on historical spend (lets face it, most strata managers are building proposed budgets with the exact same methodology being last year +x%), capital works plan, and any nasties you've uncovered.

Not necessarily a turn off. Recently was involved in a purchase with very high strata. The building had undergone a significant repair which the owners had taken a loan for, and was satisfied that everything was remedied correctly. There can be good reasons for a temporarily high strata cost, in this case the repayment of a loan over 24 months.

 

Yeah, I guess that's the biggest issue - it's impossible to know for sure so I should account for that risk. Thanks.

 

That's true. I guess I'm just worried that other issues will crop up, or there are some issues that haven't showed up in the strata report. But it's not possible to find out so just a matter of whether I would take that risk.

Would you adjust your maximum to account for the higher strata costs?

 

I've reviewed the strata records which didn't have much correspondence - mostly just formal documents like financial records and minutes. Didn't identify any nasties so I guess it's a matter of whether or not I'm satisfied that the high strata is in fact temporary and for the stated purpose. In your experience, do most OCs follow the 10-year capital works plan as much as possible?

 

You need to view the sinking fund forecast, check the accuracy of that as it determines the budget, the OC is required to collect the money but not necessarily spend based on the timelines for example stuff may not need doing when it says it's due because it's lasted longer, so at a future time they may reallocate funds for other items. An OC can't just collect money for the sake of collecting money it must all be justified off the SFF and budgeted for and spent (it's not just a magical savings pot of gold etc). Another thing to check is the insurance valuation - often insurers will er on the side of caution and push over-insure which sounds great except your premiums cost more then which means higher levies.

 

You can ask, while you’re reviewing the strata records, to view the correspondence including emails.

My personal experience, is that most owners will want to pay as little as possible.

 

You can't pay enough for a unit in a well maintained block - whether as an IP or PPOR it will always be in demand.

We had a unit in a 60's block for many years, immaculate presentation & they're still tightly held.

 

I voted "dealbreaker"
Levies are like taxes, no matter how its presented, adjusted or promised they never seem to go down

 

I own one of Australia’s larger strata companies and a few dozen home units.
1. You cannot guarantee what levies will be the next year. Levies are determined by the owners present at a meeting every single year, so one years cheap and cheerful is next years “ouch” or vice versa.
2. The agent can never vote on levies it’s up to owners.
3. A well maintained building with money in the bank is a joy to live in and own. A badly managed low levy building is a hell hole.
4. If the Levy is high to add value to a building, you’re getting a bargain, as you’re only paying partly for the works.
5. If the levies are low and they don’t have a few thousand dollars per unit in the kitty and the building needs, paint, gutters waterproofing, you’re in much more serious trouble.
6. Agents generally charge less if there is more money in the kitty as less meetings are needed.
When looking for a quality apartment I favour high levies as money is made by the appreciation of property, not by having a cheap looking building.
If I’m going to tear down the building, I really don’t care.
The short answer is smart buyers want quality property and will work out what the money is for. The crowd will walk away and in five years time both units will have the same levy or they may be vice versa and the one with higher levies may look so much better that it attracts the premium price.
Real estate purchases require a lot more investigation rather than just the $.

 

I think high strata costs are okay as long as you're benefiting from the high costs- e.g. extra contributions to the sinking fund, well maintained facilities that you intend to use. Around my area there's a plague of excessive administrative costs in complexes that are clearly not being looked after, those are the ones to avoid.

 

Unusually low fees or a poorly maintained building are greater red flags