Pinocchio comes in Purple

As kids, we all heard the story of Pinocchio. Every time he lied his nose would grow. Much of the public believe that real estate agents are direct descendants of Pinocchio. This is not surprising. However, what never ceases to surprise me is those who claim integrity and honesty are those who really are the Pinocchios.

Purple Brick has been pummeling the airwaves with advertisements. They hit the market indicating that they were bringing a higher level of integrity and honesty to the marketplace and would not take a commission for selling a property. After watching a number of their ads on Saturday, I was impressed that Pinocchio had found his way into Purple Brick.

At present, they are advertising that they are real agents selling real property and you don’t have to pay commission to them. That’s true in a way, but is totally misleading. Yes, consumers do not have to pay commission on the sale of the property. It is also true that the consumer does not have to pay Purple Brick a fee based on a percentage of the selling price. What is not true is that Purple Brick do not claim commission or a fee for sale of a property.

Recently, two clients of mine have utilised Purple Brick to sell their properties. They were unimpressed that they had to pay $5,500 upfront. Yes, it was cheaper, but there was no incentive for Purple Brick to sell the property. Once they had the money, the consumer had to pray that the professionalism of the person would ensure that the property was sold at the best possible price.

It is untrue for Purple Brick to claim there is no commission or fee in relation to selling the property. You pay them $5,500 and you appoint them to market and sell your property. It is misleading to say that you don’t pay any commission. This is clearly bait advertising and is deliberately designed to entice people to list with Purple Brick.

We encourage people to provide the market with different options. Leverage operates regularly to promote, advance and develop innovative products. It is unfair when one organisation holds itself out to have more integrity than another, when their advertising does exactly what it promises it won’t do.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Why So Many Private Landlords?

In fifteen years of providing services to the property industry, I have rarely had contact with private landlords. In the past two months, I have had a number of private landlords approach us for assistance. There have been many more who have contacted us on Facebook or other areas for comment. This is a rarity in New South Wales and Australian marketplaces. Usually there is a high volume of agency managements.

I cannot work out why anyone would privately manage their own property. The rate here in Sydney is about 5.5% in management fees. It’s ridiculous for the work that property managers put in to a single property. On a $700 a week property, the agency will only receive a fee of $38.50 for dealing with landlords who don’t want to fix anything and tenants who want everything.

Property managers are trained and work diligently towards providing three important things for landlords:

  • Income protection;
  • Maintenance of the asset; and
  • Compliance with the Residential Tenancies Act.

It should also be remembered that property managers provide landlords with:

  • Protection from the tenant; and
  • A skilled and knowledgeable professional.

The landlord gets all this for only $38.50. Every landlord knows how little they pay their property manager. Most landlords would pay more than that on a meal but for some reason or other, there is becoming this increasing number of private landlords in the marketplace.

We received a phone call from a person who is a private landlord on Saturday, in quite a state. They had tenanted their place to a very aggressive male. She was a single woman living alone and felt intimidated by this male. The tenant had fallen behind in his rent and she was too scared to enforce the rent or any termination notice against this person. She needed protection! Our advice was merely to get her very quickly to a local real estate agent to receive the protection she required. Moreover, she did not even understand the termination rules under the Residential Tenancies Act 2010, and therefore any termination would have been faulty and caused her to have to start the process again. In circumstances where she was already frightened, this would have been a catastrophe.

Good news, she has now signed with a very professional agent who is going to issue the termination notice and get a new tenant in the property. She has now seen the error of her ways and more importantly, she now has peace of mind and comfort.

We don’t know why there is an increase of private landlords and without proper data, we will not attempt to guess why this new trend is occurring. For those landlords who are thinking of running off and doing it themselves, be very careful. You haven’t been trained, and you definitely don’t have the facilities available to protect yourself against a dangerous tenant. Remember one other thing; in the coming years there will be an increase of vacancies on the market. This will push rentals down and you will be competing for tenants. It is the professionals you need to maximise your return on investments.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Community Leadership

The owner’s corporation is responsible for the management of all matters relevant to the strata scheme. It has a right at every annual general meeting to make decisions to leadership of the strata scheme.

The assessments that an owner’s corporation need to make in relation to leadership at each AGM is as follows:

  • A determination on the numbers sitting on the strata committee. The Strata Schemes Management Act 2015 provides that the strata committee must comprise between 1 and 9 members. Leverage has always been of the belief that anything above 5 members of a strata committee becomes cumbersome and only leads to arguments.
  • Although the AGM adopts a budget, which defines spending for the year, the general meeting also has the power to limit the spending of the strata committee. The general meeting can determine how much the committee can spend, without needing to call another general meeting. This essentially permits the owner’s corporation to say to their strata committee, “Anything above this figure, we want to review ourselves”.
  • The owner’s corporation at the strata committee meeting can also determine the functions of the strata committee. A strata committee under the Strata Schemes Management Act 2015 is essentially given all the powers of the owner’s corporation except what needs to be determined at the general meeting. The AGM is a perfect opportunity for the owner’s corporation to make a decision on what they want the strata committee to do and what they want referred to themselves to consider.

The Strata Schemes Management Act 2015 gives an opportunity to the owner’s corporation to find leadership. It allows you to pick who leads, what decisions they can make and what decisions they should refer to the lot owners for consideration. In any corporation, the leader should be given the ability to manage the owner’s corporation with three hands where necessary. The shareholders and the lot owners should always reserve the right to say that this is something we want to decide, not for you limited few to provide.

Through the owner’s corporation, these decisions would be different. AGM’s give a perfect opportunity to define who and what leadership should be. Great organisations have always been determined by their leadership, not by giving somebody unfettered control. Take the opportunity to use your AGM well. Many people fail to turn up to AGM’s because they are usually time consuming. Don’t make them a waste of time! Make them a place where your direction can be defined.

It’s your asset, only you can care.

Real Estate Sport

On Halloween, Leverage sponsored the annual LSN convention held at the ICC in Sydney. LSN (List Sell Negotiate) is a conference organised by the offices of Josh Phegan and Damien Cooley. Leverage was one of the gold sponsors of this event, which permitted us to spend some time listening to the speakers.

Dane Atherton from Harcourts spoke about how sexy the industry had become: The Block; Saturday afternoon on Fox Business; and, the live streaming of auctions by Domain. Real estate has become a sport where Auctioneers and Agents have become stars.

Dane was able to point to the fact that everyone is watching Real Estate and the auction process. It has become a spectator sport where winners and losers are defined.

This reality TV is ostensibly less and less real. If you look to The Block, we can easily see how reality has been removed from Reality TV.

Reserves were set; some were between 2.52 and 2.62 million dollars. Our research from local agents indicate that the estimated selling price was between 2.2 and 2.4 million. This meant that the reserves were set with no consideration of the reality of true pricing.

The Block properties receive unprecedented marketing through the term of the shows programming. No property, in reality, ever receives that form of marketing. Moreover, no vendor could ever afford such a level of advertising.

The program also makes champions of those who get the highest priced property. It brings people to the table that would buy a property for notoriety and not necessarily investment.

The auctions themselves are not real. The reserves are set to ensure profit for the promoters of the program. We have not seen, in the program’s history, that the reserve has ever been reduced so that the property will sell. The reserve sets the benchmark whereby persons will be paid winnings over that amount. If lowering the reserve is allowed, the promoters will have to start rewarding contestants under reserve. Additionally, the lowering of the reserve might mean that the program does not make their cost.

This lack of reality has turned real estate into a sport. It fails to acknowledge that real estate is important because it deals with real people and their real issues. In Australia, the house is where most of our hard earnings go. If a vendor is caused to lower a reserve, it affects the future in terms of where they live. If a purchase pays over the value, it affects their family and the time they live in the house. Higher mortgages may mean less money being spent on education, and other lifestyle pursuits.

Real estate is a serious business about serious things that happen in people’s lives. It’s not sport. It most of all, is not something that should be spectatorship. The spectators may be voyeurs of people’s disasters.

 

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Vacancy Rates

One of the early warnings signs that the boom is over is the vacancy rates in rental property. The cues are now diminishing and across Sydney the vacancy rates are starting to emerge. In particular, the highly developed areas of Sydney are starting to find a rise in vacancy levels. For example, Kellyville is now experiencing a 7% vacancy rate.

Kellyville was one of the most sought after areas and one of the champions of the latest property boom. The Hills overall were champions in the marketplace. Even though the Hills have no beach, no lake, no mountains, and no natural attractions, it exceeded all expectations. Interestingly enough, the only thing the Hills have is selective schools and Castle Towers. As a side note, Castle Towers has been indicated as the third most visited attraction in school holidays in New South Wales.

This vacancy rate stands to increase with all the new developments coming online in 2018. If we have rental vacancies now, you can throw another couple thousand properties on the rental market shelf. Rental vacancies are set to exceed. This is quite normal at the end of a boom. In 2003, it was 38,000 vacancies across Sydney. Those levels have not been reached at this stage.

Apart from the vacancy rates being concerning and the extra products being brought onto the market, we also have the additional problems of migration into Sydney. People are unlikely to migrate from other parts of Australia into Sydney because of the higher housing and living costs. Furthermore, the Federal Government is doing everything to limit further migration from overseas into the Sydney basin. This all might be good policy, but in all good policies there are often victims. This time the victim may be landlords who have purchased properties and cannot find a tenant.

What I am most interested in will be the change in property management practices.  Whilst there are low vacancy rates, property managers can demonstrate bureaucratic due diligence. They can put hurdles in front of all applicants for rental properties, and be arrogant in the selection process. What happens when there are no cues and no more than 1 application? Will property managers be so arrogant and so complacent in their choice? The liability is the same, but the urgency is different. Will this mean the lowering of selection standards as a means of insuring the investor?

The question is rhetorical. Of course, property managers and landlords will change their positions. The first objective of any landlord is the repayment of their mortgage. If this means taking a risk with a tenant, it must be taken.

The world is changing and this will mean the industry will have to change with it!

 

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

The Bullshit about Airbnb

 

We have held our tongue about this issue, but cannot hold it any longer. We understand that the innovation minister, Victor Dominello, will do anything to create Internet business within New South Wales. However, his action in relation to Airbnb is totally irresponsible.

Fair Trading has published a fact sheet for all owner’s corporations in relation to by-laws for Airbnb. In essence, Fair Trading have indicated that owner’s corporations cannot make by-laws outlawing Airbnb short-term accommodation.

The backdrop for this fact sheet is that owner’s corporations throughout Sydney have wanted to put by-laws in place to outlaw Airbnb where the property is zoned residential. If a building is zoned residential, it cannot have tenants less than 90 days. Any tenants staying there for less than this time are in breach of the Environmental Planning and Assessment Act 1979. Breaches can bring about orders under Section 121b of that legislation or can even lead to fines for those violating the zoning requirements.

Fair Trading argued that, the Strata Schemes Management Act 2015 prohibits the owner’s corporation from creating by-laws for the leasing of their property. Fair Trading argue in their fact sheet that any such by-law affects a tenants right to lease.  They go on further to state that, it is not the owner’s corporation’s responsibility to police the law.

The Strata Schemes Management Act 2015 also provides that no by-laws can be made, which are in breach of any law. How then can a law, which enforces the law, be in breach? Fair Trading’s argument is spurious and promotes an Internet business that they see as enhancing New South Wales tourism. This might be true, but it is not lawful.

Yes, the legislation does prohibit the owner’s corporation of anything that will affect a person’s right to lease. If Airbnb is an unlawful methodology of leasing, the owner’s corporation isn’t preventing their right to do anything in relation to leasing their property. All the by-law is doing is preventing an illegal action. How this is unlawful, we don’t know.

If an owner’s corporation wants to prevent Airbnb because it is residential, go for it. This is why there is a separation between courts and administers. The courts and tribunals interprets the law, not the politicians and departments. They may make them, but they have no right to enforce them. We cannot see how NCAT could ever outlaw by-laws, which require compliance with the law.

 

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

 

Bloody Confusing

This is a story which reminds us all how important the strata records are. Also, it is important to maintain a strata register that keeps the total history of the organisation in one box.

Leverage is currently dealing with a client who has a number of unapproved buildings built on their roof. The building is one where six apartments are established on the top of the building. They have access to a balcony area. Each of the apartments has made extensions into this area to establish new rooms. To facilitate these buildings, in 2004, an exclusive use by-law was prepared permitting the owner’s to build premises in accordance with the “attached designs”.

Where does the confusion occur?

  • The by-law had no designs attached. We are unable to indicate what designs have been approved for the roof of the building.
  • The registered strata plan indicates that the buildings are built on common property.
  • Nonetheless, drawings, which exist within the council, indicate that the property is lot owner property.

We now have two very difficult questions.

  1. Whose land have these extensions been built on? Is it on lot owner property or is it on common property? This is important in terms of whether the lot owner has built it on common property. What is further confusing is if it wasn’t common property, why was there any need for an exclusive use by-law done in 2004?
  2. What were the designs approved by the by-laws in 2004?

We now have a situation where we don’t know whose property it is, we don’t know what was approved and, most importantly, we don’t know why it would have been approved. It is a total mess. Council records are not accurate and neither is the owner’s corporation’s record any better. In fact, the owner’s corporation’s records have been maintained in a dreadful state and give us no assistance in terms of unraveling this conundrum.

As noted above, it is an absolute timely warning that owner’s corporations must keep good records. Owner’s corporation should maintain all original source documents from when the building was built. Any changes to the building should also be clearly recorded in the minutes and the documentation should be maintained in the strata register.

The Strata Schemes Management Act 2015 requires that records be maintained for only 7 years. This seems to be totally foolish. Records should be maintained for the building from its original status. Although seven years might see you past a litigation date, it leaves no room for any problems, which may occur down the track. Here is a clear example of where no one has kept records and the parties are involved in litigation that seems impossible to resolve.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Never Keep a Whinging Tenant

It is so tempting at times to hold on to the one who is paying the bills. It is also tempting to not remove a tenant when there is a defect in the property. When these two factors converge, a tenant who pays when living in a property which is defective, the temptation becomes too much. We should sometimes follow the prayer “lead us not into temptation,” because if we don’t, it may “not deliver us from evil.”

Leverage has recently been involved with a case where the reluctance of a landlord to remove a tenant who pays, whinges about everything, but arguably puts up with defects in the property, which others so wouldn’t. The fear of losing a paying tenant became far too much for these very respected and experienced landlords.

The premises was in a strata plan that had water egress problems. In fact, there was water throughout the building and there was leakage around some of the entrances into the building. This meant that, there was mold and water damage throughout a number of the apartments.

It was accepted that the problem was one that the owner’s corporation needed to fix. The owner’s corporation was in litigation with the builder. After three years, the builder did determine to undertake the work to fix up the deficiencies with the building.

The tenant remained in the premises for 3.5 years. He signed a six-month residential tenancies agreement in the beginning, and then signed 3 twelve-month extensions. He remained there for 3.5 years while the defects occurred. Interestingly enough, he lived somewhere else in the building and was happy to move into the premises, which already had the defects.

The premises has now been fixed. The tenant has moved to another unit within the building, indicating his love of living in that building.

The tenant whinged, throughout the tenancy about everything. He sought no action at the tribunal and the landlord even provided him with a rent reduction for the damage, which was occurring to the unit. This was gleefully accepted, but was soon met with more whinging about the water egress, which the landlords had no power over. And, yet he remained because he was paying something to the mortgage.

The tenant is now claiming $96,000 in damages. He has indicated he is going to file in the local court to take action against the landlords. His case is difficult because:

  • He knew of the leakage before he entered;
  • He was given rent reduction as a means of facilitating his loss of amenities; and
  • By signing a residential tenancies agreement on three occasions, the tenant did not mitigate their losses by leaving the premises when they had the earliest opportunity to do so.

Even though we believe the landlord’s case is an incredibly strong one, it does not reduce the fact that a claim is now made. The tenant is claiming $96,000, which means that both parties will be represented at court. This will be costly in the extreme to both the landlord and the tenant. The tenant is gambling upon the fact that the landlord will flinch and pay him a good sum of money to make him go away.

Do not be “led into temptation” because it will cause you some evil. If the property is defective and the ability to fix it is out of the landlord’s hands, remove the tenant and go and get another one. Ensure that you put two special conditions in the residential tenancies agreement:

  • The tenant acknowledges the damage; and
  • The tenant will not make any claim for loss as a result of the damage.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

What does a property trade show in Indonesia tell us about the property market in Australia?

Last month, there was a property trade show undertaken somewhere in Indonesia. The trade show was to introduce Indonesian consumers to the Australian property market. In what was created for profit for the promoter ended in utter disappointment.

Indonesia is our closest trading partner, just over the water from Darwin. Their high worth individuals have spent money in the Australian property market. Their intention has always been to move money from Indonesia into Australia, buy property, and sell property at a later date and invest the money further in Australia.

The Indonesian market has always been fertile harvesting for Australian real estate. The trade show demonstrated that this feast has now become a famine. Not a single property was sold at the Indonesian trade show. You would have expected something, but nothing. The well of Indonesia is empty and dry for Australia.

This is a demonstration that the Australian property market is waning or an indication that the government policies are starting to bite. From conversations we have had with people who work in this sphere, it is the latter. The government is deliberately dulling the growth of the property market. Whether this is a good thing or a bad thing, can be left to another day.

On the 21st of June 2016, the NSW government introduced higher land tax and stamp duty for people buying into Australia from overseas. Clearly, a disincentive for those purchasing offshore due to the increase of costs to buy Australian housing.  Secondly, on the 1st of July 2016, the Commonwealth government introduced the obligation of the purchaser to take 10% of any sale over 2 million unless the vendor can provide that they are an Australian Tax payer.

The commonwealth move was designed to make sure that Capital Gains Tax was paid by investors who lived overseas. They felt that by taking 10% of the purchase price from those who are overseas, the government can ensure that their capital gains tax was paid. This seems to have good logic, however they have reduced the 2 million threshold to a $750,000 threshold. As noted in a previous article, this has allowed the government to track every sale of every Australian. Big brother is definitely in our back pocket.

The information that we have been able to glean is more frightening. Members of the Australian Taxation Office have contacted members of their equivalent in Indonesia advising them of their persons who are buying properties in Australia from Indonesia. You know those purchaser declaration forms we’ve been filling in? Those are being used to advise a foreign government of spending of internationals.

This next bit is unsubstantiated. We understand that the ATO equivalent in Indonesia went to these individuals and advised them that, if they sell properties in Australia and return the money to Indonesia, no investigations will occur. On the other hand, if they sold the properties and kept the money in Australia, Indonesia would prosecute for unsubstantiated income.

No one with high net wealth will now invest in the Australian marketplace.  First the Australian and Chinese governments closed off China, now the Commonwealth government has assisted to close off Indonesia. Was this good? I am not yet a sufficient expert to make any legitimate comment. The only thing we will say is that, 12% Australia’s GDP is based in property. By killing off movement, we are attacking 1/8 of our economy. Moreover, it has been a fact since 1985, that between 5-10% of our properties have been sold to international investors. It appears that we are attacking 10% of our marketplace, which has supported not only the marketplace, but has been the architect of rental property. The reduction of investors in the marketplace can only result in increased rental prices.

A little trade show in Indonesia may be an insight into the future of this Australian property industry.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

Report Repairs

Investing in property means two things:

  1. You want to make money out of it; and
  2. You don’t want to lose money.

A strata management article was recently posted on the site ‘Look Up Strata’. One of the posts was a timely reminder about defects. That is, defects in strata or community title premises. The poster told of a story about an upstairs balcony railing, which was loose. This wasn’t reported by the tenant or the property manager to the owner’s corporation and it was allowed to be defected. Unfortunately, the railing, which was loose, also allowed for water to seep in. Whilst the seal was broken, water leaked through and caused enormous amounts of damage. The writer indicated that, instead of it being a $300 job, it became a $10 000 job.

The question is knowledge. Surely, we’ll know if a balcony railing is loose. Moreover, a property manager undertaking return inspections should be checking whether upstairs balcony railings are loose or in any way defective.

Balustrades and balcony railings are the responsibility of the owner’s corporation to maintain and repair. Nothing at law, however, will require them to maintain and repair something they know nothing about. Essentially, the tenant through the landlord is given exclusive use to balconies. The owner’s corporation is not permitted to break people’s quiet peace and enjoyment by checking these balconies.

All of us have a duty of care to take all steps to avoid harm, which we may reasonably see. In other words, if we can anticipate a problem, we have a duty of care to take steps to avoid that harmful problem. If we see that maintenance and repairs clearly need to be undertaken, where a problem may be exacerbated by not being fixed, the tenant/landlord/property manager may be responsible for paying these damages.

The job is easy for a tenant! Report it to your property manager.

For the property managers, we believe the following should be undertaken:

  • If you receive a complaint by a tenant, it is immediately passed on to the owner’s corporation in writing;
  • When undertaking routine inspections, check for defects. Remember that, the case of Jones and Barker will only require you to check by an average person’s standard. Obviously, place your hand on the rail and see if it is safe. If you believe it is not safe, this is when you should report it to the owner’s corporation. This should be noted in your routine inspection report and passed on to the owner’s corporation.

It is a simple task, which can be carried out during other tasks and therefore is not a great imposition on anyone. Failure to report repairs may cause the person who ignores it to pay the price.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538