In most cities around the world, apartments form a key part of the housing stock. New Zealand faces the same housing challenges as any other country but, anecdotally, apartment take-up remains slow, particularly outside of Auckland. While this may be largely for lifestyle reasons, New Zealand has a bad record of delivering poor quality apartment buildings generating huge losses for their owners. We look at some of the considerations and risks associated with investing in apartments.
Your home might be your castle, but the castle management gets outsourced.
When you invest in an apartment (or other Unit Title property), you relinquish a degree of control. In some regards, having a committee (of the ‘body corporate’) and a management company dealing with day to day issues like fixing gutters is one less thing to worry about. But this also means that you’re not in control of the purse strings. The risk of costly surprises should be low. However, it’s too often the case that significant unexpected costs do arise at some stage and if you can’t pay your dues, you’re left with stark (if any) choices.
Buying any property carries the risk of building defects. With apartments, the scale and multi-unit nature increases the risk of building defects and the implications are generally more serious.
Most of the major issues with apartments to date have arisen from weathertightness failures, commonly referred to as ‘leaky buildings’. These issues go unnoticed for years, often causing terminal damage to timber framing. To the untrained eye (which includes builders), it can be impossible to identify the existence of such problems. Remedial works to replace a cladding system are costly and disrupt occupation of the units.
It is becoming clear that a material proportion of our multi-unit developments have sub-standard passive fire safety, carrying an increased risk to life and property.
Concerns around the fire safety of multi-unit buildings have also emerged of the past few years. Buildings generally have two parts to fire safety, referred to as ‘active’ and ‘passive’. Active fire safety systems are features like fire alarms and sprinklers, which are generally subject to regular inspection and testing. Passive fire safety refers to construction features that prevent fire spreading rapidly between units. Once constructed, these are rarely checked. Widespread passive fire issues have come to light on a number of remediation projects on apartment buildings with significant cost implications.
In a similar vein, the use of aluminium composite panels (ACP’s) as a cladding system is common in New Zealand. The fire safety claims of many of these products have been discredited after the Grenfell disaster in London drew these products into the spotlight. While councils are identifying buildings that pose a risk to life, other buildings may be ‘safe’ but suffer costly damage, like the Lacrosse Apartments building in Melbourne.
If you’re purchasing a unit title property, don’t assume that the maintenance plan provides any assurance that the building is free from defects.
Although it’s a requirement of the Unit Titles Act to have in place a maintenance plan to forecast the cost of works required over the next 10 years, remediation of defects currently falls outside such plans. In our experience, body corporates often select less qualified/experienced advisers at cheap fees to prepare maintenance plans, forsaking quality, ‘value added’ advice on the risk of defects in the process.
There is pressure on the government to bring forward a draft bill that requires defects to be included in maintenance plans. While this may pose a challenge for professionals (it’s impossible to guarantee that any building is free from defects), it will hopefully remove those who are not competent to be giving such advice from the market and improve the standard and quality of the maintenance plans owners and buyers rely on.
If we’re going to embrace apartment living in New Zealand, buyers need to know that their investment is safe. Apartments and multi-unit developments involve more complex and bespoke construction than a one or two-storey house. This, combined with our reliance on lightweight, less durable materials dictates a higher level of skill and care from all those involved in the development. Unless and until our industry can meet this requirement consistently, apartments will continue to represent a riskier investment.
If you’re considering buying an apartment, as with any property purchase, it’s important that you do your homework. Make sure that you obtain copies of the maintenance plan and information on the maintenance done to date and get the advice of a local chartered or registered building surveyor as part of your due diligence (see the NZIBS register).