Pros, cons, risks, and considerations when buying a strata property

More than three million Australians own apartments and collectively, belong to around 350,000 strata schemes across the country.

For many aspiring home buyers, units, apartments, and townhouses can offer an affordable entree into the housing market and an opportunity to purchase in a desirable location where buying a detached home may be out of reach. For more established Australians, these options present an opportunity to downsize to a more affordable home with fewer maintenance demands.

But strata properties are subject to fees, rules, and responsibilities. It pays to understand them before you sign on the dotted line.

What is a strata property?

A strata property is one that includes areas of individual ownership (known as lots) as well as other parts subject to shared ownership (called common property). Common areas can include driveways, gardens, lobbies, stairwells, elevators, pools, or other facilities such as saunas and gymnasiums.

Under so-called strata titles, owners own their individual unit, apartment, or townhouse but also share responsibility for the upkeep and maintenance of common areas within the building or complex.

Such upkeep and maintenance is managed through an owners' corporation, or body corporate, made up of all lot owners. You cannot buy into a strata scheme without also buying into the owners' corporation and chipping in to cover communal costs.

What to ask when buying a strata property?

While strata properties can look appealing for the facilities they can offer, prospective buyers should always check the fine print. Here are the documents to request from a seller or the seller’s agent:

• Strata plan and by-laws
  This will outline exactly what the common areas of the property are as well as any restrictions on their use. Such restrictions can include rules around renovations, noise, pet ownership, and parking.

• Strata levies
  This will set down the required contributions in a 12-month period to maintain common areas and facilities. These should also cover how much is needed for:

  • Administration fund
    Covers budgeted maintenance or repairs and insurance of common areas

  • Sinking fund
    Reserved funds to cover the cost of emergency or unexpected repairs and provide for future maintenance or replacement of common facilities

  • Any special levies
    When an unexpected cost can’t be covered by the administration or sinking fund, a special contribution may be required

• Most recent strata accounts and previous accounts
  These will outline maintenance and other costs for the most recent period as well as a history of expenses on the property.

• Minutes from recent annual general meetings (AGMs)
  This should include the most recent AGM and at least the previous AGM to get a picture of recent and possibly future issues.

• Insurance details
  This will reveal what is covered by the strata insurance, the amount the complex or building is insured for, and should provide a clearer picture of what you will need to insure for your individual lot.

The pros and cons of buying a strata property

Pros

• Cheaper to get into
  Strata-titled properties generally cost considerably less than freestanding homes in the same area. This is because the lots share the most expensive part of the purchase – the land.
  Strata properties can be a great way for first homebuyers to get on the property ladder and can be appealing for downsizers who don’t want the responsibility and expense of maintaining a property on their own.

• Access to better facilities
  Strata properties can come with amenities that an individual lot owner may not be able to afford otherwise, such as swimming pools, landscaped gardens, barbecue areas, gyms, saunas, and spas.

• Less maintenance
  Lot owners share responsibility for ongoing upkeep of common facilities, often through outsourcing their maintenance to specialist contractors.

• Shared costs
  Maintenance costs are shared, as is the cost of repairing or replacing major infrastructure as needed.

• Communal living
  Some homeowners may prefer living in close proximity to others for reasons such as security and social contact that they may not get in a standalone dwelling.

Cons

• Communal living
  Just as some people may be more comfortable living closely to others, there will be those who don’t enjoy being in such close proximity to their neighbours.

• Restrictions on renovations and decor choices
  Many strata properties restrict lot owners from making changes to the outside of the property. They may even dictate what window dressings you can choose.
  You will likely also need approval from the owners' committee to do major renovations or improvements to your own lot (even if it’s just for tradespeople to get access or make noise).

• Committees can bring conflict
  Going through a committee to make decisions on the property may not always be a quick or smooth process. Strata committees can be the source of disagreements and conflict, made worse by having to living in such close quarters with committee participants.

• Insufficient funds
  Body corporates can run out of money through failure to set aside enough funds for emergencies or if an unexpected expense wipes out the sinking fund. They may then require significant investment from all lot owners to cover costs and rebuild the sinking fund.

• Lifestyle limitations
  Strata properties usually come with rules on the use of common facilities, including when and how they can be used. They also may have rules governing noise, car parking, social gatherings, sub-letting, pet ownership, and smoking.

• Don’t appreciate in value as much as standalone dwellings
  Historically, the value of apartments, units, and townhouses tends to appreciate more slowly than freehold homes. However, this often depends on the location and type of strata property. If you're aiming for capital gains when selling, a standalone property might offer a better return.

Should I buy a strata property?

Whether or not you should buy a strata property will depend on your own circumstances and needs, as well as the property itself. Before you buy a strata-titled home, do your homework on the financials and the property's by-laws or, better still, get a professional to examine them to identify any potential issues.

It also pays to check the ratio of owner-occupier to investor owners in the property. It’s often better if the ratio is skewed to owner-occupiers, as they’re generally more likely to ensure the building is well maintained and well-funded.

Also consider whether owners handle the day-to-day management of the property themselves, or if it’s contracted to a professional strata management company. This is often the case with larger complexes or apartment buildings. While such companies can provide independent and specialist oversight, some strata management companies have come under criticism for overcharging for their services and taking undeclared kickbacks from contractors and insurance providers.

As with most things, it pays to keep an eye on how your money is being spent. It can be a good idea to participate in the committee, or at least attend the AGM so you can have your say in how the property is being managed and any decisions that need to be made. There’s no use complaining about strata matters if you haven’t bothered getting involved.

At the end of the day, strata properties can provide affordable, well-located homes – in some cases, with access to amenities you couldn’t have if you were to fund them yourself. While communal living may not be for everyone, housing experts agree that strata properties are set to make up a growing portion of Australia’s housing stock into the future.

Original article by Gerv Tacadena, February 2021. Updated on 25 October 2024

Image by Jacky Chiu on Unsplash