Podcast: Off-plan buyers rage and SMs slap back

There’s a lot of anger and frustration behind this week’s edition of the Flat Chat Wrap.

The fury on display on a recent episode of A Current Affair on Nine is both clear and understandable.

Prospective owners in the Sapphire apartments in Gosford on the Central Coast of NSW had been told to be ready to move in, only to discover that work has stopped on the near-complete block and there is no occupancy certificate.

The developer has long ago gone into receivership and the Receiver says they don’t have the finances to complete the building, which would include a slate of defect rectifications identified by the NSW Building Commission.

Jimmy and Sue discuss how this mess came about and if anything can be done to remedy it.

And they also have a chat about whether strata managers are entitled to be angry at Press coverage. It’s never ideal when good professionals are tarred with the same brush as bad operators. 

But is it a case of “don’t shoot the messenger”? That’s all in this week’s Flat Chat Wrap.

Transcript under construction

Jimmy (0:00 – 0:08)

There was a track on TV the other night on A Current Affair which reported on a situation in a building in Gosford called Sapphire Apartments.

Sue (0:09 – 0:10)

Oh, I’ve seen photos of that.

Jimmy (0:10 – 0:36)

Yeah, and the story was about how the building is quote 90% finished but the owners, or sorry, the people who are trying to buy the apartments can’t get in. So we’ll talk about that and we’re going to talk about a kind of backlash from strata managers about being criticised. So   there’s a lot of material in that.

I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue (0:36 – 0:41)

And I’m Sue Williams and I write about property for the Sydney Morning Herald, the Age the AFR, and Domain.

Jimmy (0:41 – 1:14)

And this is the Flat Chat Wrap.

So this Sapphire Apartments block,   it was quite an interesting piece on A Current Affair. And it’s the nature of the beast, they don’t have the time and they probably don’t have the viewer interest to go into all the complexities of these things.

But I thought it was worth digging around.

Sue (1:14 – 1:15)

Yeah, what did you find then?

Jimmy (1:16 – 1:21)

Well, there’s a big building in Gosford, quite an attractive looking building.

Sue (1:22 – 1:26)

Yeah, the photos make it look really good. It’s kind of up a hillside, isn’t it?

Jimmy (1:26 – 1:39)

Yeah, it’s up against a rock. And that’s probably part of the initial problem, because they had to build around the rock face. And that has meant that very few apartments are the same floor plan, for instance.

Sue (1:39 – 1:40)

All right.

Jimmy (1:40 – 1:42)

So that makes it much more expensive to build.

Sue (1:42 – 1:45)

And you said that residents aren’t able to get inside. So what’s happened? Why?

Jimmy (1:46 – 1:50)

Well, basically there’s no occupation certificate that’s been issued.

Sue (1:50 – 1:51)

That’s not been issued. Okay.

Jimmy (1:51 – 2:00)

So they’re not allowed to move in. They’ve been sent notices telling them, I’ll book your lift for getting your furniture in.

Sue (2:00 – 2:02)

Oh, that’s always an exciting part.

Jimmy (2:02 – 2:02)

Yeah.

Sue (2:03 – 2:04)

And then suddenly they’re not allowed in.

Jimmy (2:05 – 2:11)

They’re not allowed in and they’re very frustrated and angry. And meanwhile, they’ve been offered their deposits back.

Sue (2:11 – 2:12)

What’s the developer doing?

Jimmy (2:12 – 2:35)

Okay, so let me just backtrack a little bit on this. The developer went into receivership, which is why the cost of building is probably relevant. And there’s lots of this going on all around Australia.

Developers, they’re hit by COVID. They’re hit by big flooding rains shortly after COVID was on the wane.

Sue (2:35 – 2:39)

Yeah. And escalating material prices, especially timber and steel.

Jimmy (2:39 – 2:41)

Because of the supply chain issues.

Sue (2:42 – 2:59)

So it just means like, just as home builders are now having problems because they issued a fixed cost contracts. Now many of them are offering kind of variable cost contracts, which is kind of a bit difficult. But I guess with apartment buildings, it’s those kind of issues in a much bigger scale.

Jimmy (2:59 – 2:59)

Yeah.

Sue (2:59 – 3:06)

Because they’ve done their budgets on what materials would be. And then suddenly they’ve had to cope with much more expensive ones.

Jimmy (3:06 – 3:35)

So the developer went to receivership and the receiver was left with the building to try and complete it. But at some point, the building commission did an inspection and found defects, a lot of defects through the building, which is not unusual either. They issued a report to the receivers and the building commission said, if you want an occupation certificate, you’ve got to give us at least a plan of how you want to fix these things.

Sue (3:35 – 3:46)

And I guess one of the difficulties is when somebody else comes in to try and fix one person’s defects, or one building’s defects, they can suddenly uncover lots more defects that they didn’t know were there.

Jimmy (3:47 – 4:35)

Exactly. And, you know, the builder in this case, who is owed money by the developer, or now the receiver, has said that they’ll come in and fix the defects and finish the building. But the receiver is going, well, you don’t know how many defects you’re going to find during the process of fixing it.

So there is a real standoff here of the building is near completion and the figure being bandied around is it’s 90% complete. I don’t know how anyone would know that that is the case. Apparently owners have been shown around their apartments.

Pressure is being put on the building commission to just wave this through, I hear. And the building commission, well, they’ve got a job to do, which is to protect consumers.

Sue (4:35 – 4:36)

Yeah, absolutely.

Jimmy (4:37 – 4:47)

But the consumers in this case are not feeling very protected. They’re feeling that they’re being hard done by because they think, we put down this deposit, property values have gone up in Gosford.

Sue (4:47 – 4:50)

In the interim, yeah, because there’s been a huge amount of building there, hasn’t there?

Jimmy (4:50 – 4:56)

Yeah, and a lot of interest from people, and, you know, especially because it’s commutable distance from Sydney.

Sue (4:56 – 5:00)

Yeah, so you can work from home a few days a week and just nip down to Sydney a couple of days.

Jimmy (5:00 – 5:01)

Yeah, yeah.

Sue (5:01 – 5:02)

And you’ll be fine.

Jimmy (5:02 – 5:20)

So there’s a lot of frustration, a lot of anger, and a lot of maybe a lot of misinformation going around. So what is not happening is it’s not what we call a sunset clawback. As far as I know, there’s no sunset clause on these contracts.

Sue (5:21 – 5:21)

Oh, good.

Jimmy (5:21 – 5:55)

But just for the sake of our listeners, we spoke earlier about sunset clawbacks and how that got kind of knocked on the head here in New South Wales. So let’s just listen to that track that we recorded earlier. Years and years and years ago, you came across a story about an apartment block in Surrey Hills in Sydney, where the original developer had sold to another developer and they had decided to basically stop work on the project and let it go over the sunset clause.

Sue (5:56 – 6:01)

Because the sunset clause is the period at which they’re supposed to kind of finish.

Jimmy (6:01 – 6:36)

Yeah, if they haven’t finished by then, either party can rescind the contract. So, you know, it could be that you’ve been sitting, waiting for this building, this house, this apartment for years, and it’s not getting finished. And you can say, OK, just give me my money back.

Or the developer can say, oh, we haven’t been able to finish this in time. Here’s your money. And obviously, this turned out to be a huge scam because the developer who bought the project admitted that he had brought the project with the intention of invoking the sunset clauses, so he could make more money.

Sue (6:36 – 6:43)

Yeah, because he could give people their money back. And now the apartments were worth a huge lot more in the interim.

Jimmy (6:43 – 6:44)

Because it was during…

Sue (6:44 – 6:45)

So he could resell them again.

Jimmy (6:45 – 6:49)

It was during the boom. So he could put them back on the market and…

Sue (6:49 – 6:50)

For much inflated prices.

Jimmy (6:50 – 7:17)

Yeah, and it would have been about 25% more. So it was an easy profit for them. But all the people who had put their money in,  , it’s all very well to say, oh, you can have your money back.

But that money in that market was worth 25% less. If they put the same money towards an apartment, well, they wouldn’t get the same apartment. Some people in the building had been offered the opportunity to rebuy at a higher rate.

Sue (7:18 – 7:20)

And some of them took it. It was incredible. Yeah, no, absolutely.

Jimmy (7:21 – 7:27)

But, you know, just to make things more ridiculous, the developer in that case moved into the penthouse apartment.

Sue (7:27 – 7:29)

That somebody had bought.

Jimmy (7:29 – 7:30)

That somebody had bought.

Sue (7:30 – 7:32)

And was resisting kind of giving in.

Jimmy (7:32 – 7:36)

So they thought, well, I’ll just have it in the interim. So they moved in.

Sue (7:36 – 7:44)

It was incredible. And the guys who’d actually bought that apartment were just watching the developer living in their penthouse.

Jimmy (7:44 – 7:52)

Yeah, saying that, oh, the apartment isn’t complete yet. So we’re going to invoke the sunset clause.

Sue (7:52 – 7:55)

And it’s not complete yet. So I’m going to live there and you can’t live there yet.

Jimmy (7:56 – 7:57)

Yeah, because it’s not complete.

Sue (7:57 – 7:59)

But good on them because they took him to court.

Jimmy (7:59 – 8:49)

Well, what happened? They did take him to court. They didn’t have much joy initially.

But then you spoke to Victor Dominello. Victor Dominello, who was, you know, the fair trading minister at the time, I think. He was outraged.

I remember being in his office. We were just talking about Strata. And he said to me, well, what else is going on?

And I said, you need to talk to Sue about this story that she’s got. It’s really interesting. He said, what’s the story?

And I told him, he said, that’s outrageous. So he suddenly, just very, very quickly brought in this ruling that you could only invoke the sunset clause with the agreement of both parties unless you went to court. And if you went to court, you’d have to prove that there was a reasonable…

Sue (8:49 – 8:51)

Compelling reason that you haven’t finished in time.

Jimmy (8:51 – 9:55)

Yeah. So he brought that ruling in initially, brought it in as a regulation and eventually became law. And I remember that developer, the developer who’d bought the apartment with the intention of invoking the sunset clause was gutted.

You know, he’s like, I’ve wasted my money. I’ve got this, I’m gonna have to give these people their apartments. The only money, extra money he made was off the people who panicked and bought at the higher price.

So it’s not a sunset clawback. It’s just the developer has gone. The receiver basically wants to get an occupation certificate so they can finalise all the sales.

The occupation certificate is not gonna be issued until the defects are dealt with and the receiver can’t or is not keen to commit to fixing the defects because A, they don’t have the money to do it and B, they don’t know how much it’s gonna cost.

Sue (9:56 – 10:27)

It’s a really difficult situation, isn’t it? Because obviously those consumers, they put down 10% a couple of years ago and that 10% is worth a lot less now than it was worth then. But at the same time, it’s kind of good that they’re not in a building with massive defects and then having to battle with the developer who’s gone into liquidation and, you know, maybe a builder who has not been able to fix all the defects adequately.

And, you know, destined to years of battling and worry and anxiety.

Jimmy (10:28 – 10:35)

Yeah,  , there’s two ways. There’s two headlines on this. One is that they’re shattered dreams and the other one is dodged a bullet.

Sue (10:36 – 11:05)

That’s true.  , I was talking to a property investor specialist in off-the-plan apartments yesterday, Rhys Coleman. And he was saying, you know, like all off-the-plan buying is kind of a bit of a risk.

The Building Commission now has really minimised the risk because if you buy from an ISERT certified developer, then you know that the building is likely to be okay. So the risks in New South Wales are marginally much less than they are elsewhere in the country.

Jimmy (11:06 – 11:32)

Well, they’re saying that this building is one of the last of the pre-ISERT buildings to come on stream. There’s still a few nearing completion, but the next year or two should see them flush out of the system. And then it’s up to the consumer.

You know, if you put a deposit down with somebody who doesn’t have an ISERT rating and the building starts falling apart before you can get into it, well, you’ve only got yourself to blame really.

Sue (11:32 – 13:30)

Yeah, absolutely. And  , investing in off-the-plan apartments, buying them to live in or investing, you know, it can be a really good strategy or it can be a really difficult strategy, but you have to recognise that there is a risk. And especially elsewhere in the country.

This guy I was talking to yesterday, Rhys Coleman, was saying that it only makes sense to buy in a rising market, obviously, because then when you put down your 10%, if the building’s okay and everything goes fine, you do stand the chance of making a big profit when you move in.  , he works mostly in Brisbane and he only buys from developers he knows and who have in-house builders. So he’ll only buy from maybe three or four developers in Queensland.

So he’s kind of minimised his risk straight away. And he was telling me about one where he’d bought something a few years ago for 741,000, an apartment, and now is worth 1.49 million. And that’s the dreams of everybody who buys off-the-plan, really, to get that kind of result.

But then when things do go wrong, he was saying there’s four things that can happen really. One is that developers can reprice the apartments. And that’s happened in our cases of sunset clawbacks.

Somebody buys an apartment for 800,000, and then the developer comes back and says, well, look, that isn’t a realistic price anymore. It’s now worth 950,000. You’ve got to pay another 150,000.

What do you say? And then the consumer, if there’s no protection, no insurance protection, has to decide whether that’s a worthwhile outlay or not. Or they can re-engineer the cost at the last minute.

These apartments are 90% done, but for the other 10%, they can really try and reduce their costs. They can install really cheap ovens instead of the Miele appliances they recommended, or cheap nylon carpets instead of the wall carpets. So they can kind of try and make it a bit cheaper for themselves.

Jimmy (13:31 – 13:36)

Because what you see in the brochure that you get when you sign up, unless that’s in the contract.

Sue (13:37 – 13:38)

Yeah, it doesn’t mean much.

Jimmy (13:38 – 13:39)

It doesn’t mean much.

Sue (13:39 – 13:48)

Absolutely. Or thirdly, they can cancel the project. Or fourthly, they could go into liquidation.

So there’s those four possible outcomes really.

Jimmy (13:48 – 14:09)

It makes it all seem very risky, which makes you think that the government desperately needs people to be… If they’re not going to invest in housing, which they say they are, but to some extent, but if they want people, ordinary consumers, to effectively finance the development, then they’ve got to give them more protection.

Sue (14:09 – 14:16)

That’s right. Absolutely. They’ve got to incentivise them.

Because at the moment, people are really still really nervous about buying off the plan.

Jimmy (14:16 – 14:40)

Well, on the current affair track that we started this whole thing, at the end of it, the reporter asked Amanda Farmer, a friend, a Strata lawyer, if she would buy off the plan. And she kind of laughed and said, no, absolutely not. Not in the current climate.

So somebody’s got to change the financial and risk climate to encourage people to buy off the plan.

Sue (14:41 – 15:03)

That’s right. And the government’s talking about all these million houses they’re going to build. And that’s great.

But they’re all going to be mostly apartments in high density areas around the transport hubs. But they really need to make sure that people are willing to buy them or willing to rent them and invest in them. And without that surety, it’s going to be a real problem.

Jimmy (15:03 – 16:09)

All right. Well, to the people who invested early in Sapphire Apartments and who have been looking at the notional value, real estate agents are advertising apartments in their building at much higher prices than they had agreed to pay. So there is a sense of, an understandable sense of frustration among the purchasers.

But I’m taking the view, it’s one that was expressed months and months ago by former building commissioner David Chandler when he was talking about other buildings where this had happened. That as we said, okay, your dream has been shattered, but you’ve dodged a bullet. You’ve dodged years and years of frustration.

And it’s not just frustration dealing with the developer or whoever is responsible for finishing the building. It’s the nastiness that grows up inside the community, inside the Strata community as one group of people want one solution and one group want another. And it gets very personal very quickly.

Sue (16:10 – 16:13)

It does. It’s just really hard that it’s happened at this late stage, isn’t it really?

Jimmy (16:13 – 16:13)

Yeah.

Sue (16:13 – 16:16)

Especially if they were just getting to book the lifts.

Jimmy (16:16 – 16:16)

Yeah.

Sue (16:17 – 16:22)

Presumably kind of giving notice on their rental accommodation or selling off their other places, you know.

Jimmy (16:22 – 17:09)

But I wonder if the notice is about booking the lift. It’s probably some algorithm somewhere on a computer or some, you know, trainee has said, oh, it’s in my diary that we’ve got to send out these notices now without even checking whether the building exists. And talking about people being angry and frustrated, Strata managers are starting to get annoyed at the criticism that’s around, but only partly justified after the whole NetStrata scandal and the consequences from that.

So we will be talking about that. After this. So I was going through LinkedIn.

I don’t like LinkedIn. Why not? Well, somebody once described it as the social media equivalent of witness protection.

Sue (17:10 – 17:11)

Why?

Jimmy (17:12 – 17:18)

Ah, it’s so hard to get. I hate it because I signed up for the trial period of their…

Sue (17:18 – 17:19)

Oh, their premium service.

Jimmy (17:19 – 17:44)

The premium thing. Partly because I wanted to get an address for this guy. I think it was something to do with the PR for Vietnam Airlines.

And I wanted to get a contact for him. So I did get the contact for the person I was looking for. It turned out to be the wrong guy.

Never used it again. And then I missed the email saying, oh, we’re about to hit you for a lot of money for an annual subscription.

Sue (17:44 – 17:45)

Oh, no.

Jimmy (17:45 – 18:02)

And I went back to them and said, oh, wait a minute. I missed that. I don’t want an annual subscription.

And they said, oh, you need to go on our complaints folder. And I went on to the complaints folder or tried to get on the complaints folder. It wouldn’t take any emails because it was full.

Sue (18:02 – 18:03)

Oh, my goodness.

Jimmy (18:03 – 18:08)

So you’ve got a social media company that’s got a full email box for complaints.

Sue (18:08 – 18:11)

And you can’t make it. I never got it back. And are you still paying every year?

Jimmy (18:11 – 18:22)

No, no, no, no, no, no. It’s cancelled now. But the weird thing is they said, you’ve paid for a year in advance.

And I said, well, I don’t want to have it for a year. And so they cancelled my subscription.

Sue (18:23 – 18:23)

Completely.

Jimmy (18:23 – 19:08)

Completely. So I didn’t get the year’s subscription. I didn’t get any benefit, not that there was any.

And then they keep sending me things saying, hey, why don’t you try your free subscription? And I keep sending them rude emails. And I did a thing on LinkedIn.

I thought, oh, how can I get to the people who might consider doing this on LinkedIn? I thought, I’ll put a post on LinkedIn. So I put a post on LinkedIn saying, don’t fall for it.

It’s a scam. You can’t trust them. They have no customer service.

Their complaints bucket is full, which means, one, they’re getting a lot of complaints. And two, they’re not getting your complaint because there’s no room for it. It made no difference whatsoever.

But they still send me their stupid robot emails.

Sue (19:08 – 19:09)

So what is the point of all this, Jimmy?

Jimmy (19:10 – 19:32)

Well, anyway, so on LinkedIn, a strata manager has said, can the self-appointed experts stop criticising strata managers, like at the basic level of strata management, who are out there just doing, they’re trying to do their job? It’s not their fault that things have gone wrong.

Sue (19:32 – 19:33)

Whose fault is it then?

Jimmy (19:33 – 20:46)

I think the implication was it’s the self-appointed experts. But it’s kind of that shoot the messenger thing. So this is quite, it’s a knee-jerk thing.

When they get criticised, and this applies to just about anybody in any field, they slap back. So this thing said, can the self-appointed experts stop criticising strata managers? And I made the point, look, whenever I write about this stuff, and I’ve been writing about it a lot recently, I always make the point that the majority of strata managers are just trying to do a decent day’s work.

They’re honest and decent and they have integrity. But there are other people, and they’re bosses, the big companies, they’re the ones who are setting the standards. They’re the ones who are saying, do this dodgy little thing, do this.

We’ll give you a bonus if you get more Schedule B fees paid and stuff like that. It’s difficult because can you really expect strata managers at the call face to turn around to their bosses and say, oh, this thing about this embedded network that you’ve got me to put in to this first AGM agenda sounds a bit dodgy, I don’t want to do it. Are they going to do that?

Should they?

Sue (20:47 – 20:52)

Well, difficult, isn’t it? Especially in today’s society where everybody’s hard up.

Jimmy (20:52 – 21:20)

Well, we work for many years, have worked in an industry where I remember somebody saying there are more left-wing journalists working on right-wing newspapers than there are right-wing journalists working on left-wing newspapers. And you do kind of, you sign up for a job and you do what the job requires. And if your editor and your publisher requires you to be right of centre, then that is what you will do.

At the very least you will…

Sue (21:20 – 21:20)

Not always.

Jimmy (21:20 – 21:33)

No, but if you are contributing to the success of a newspaper which does not share your political point of view, then you are to some extent being hypocritical, are you not?

Sue (21:33 – 21:40)

Yes, but you might be writing about sport or you might be the lone left-wing voice in a right-wing newspaper.

Jimmy (21:40 – 21:48)

Yeah, but there’s not many people in that situation. So strata managers, for the record, there’s a lot of good people out there doing good work.

Sue (21:49 – 21:51)

Some excellent people, really, doing amazing work.

Jimmy (21:52 – 22:36)

And they’ve got horrendous jobs because they’re dealing a lot of the time with people who do not know what is supposed to happen. They don’t know what their rights are. They don’t know what their responsibilities are, especially.

And when they’ve got somebody who comes along and says, well, this is the law and these are your bylaws, they kind of see them as the enemy. And that is really unfortunate and unfair. However, some of the big companies, strata companies, all they’re interested in is maximising their profit.

They’re about profit, they’re not about service. And that’s where the problem starts. So strata managers, you should know that we love you.

We know the kind of hard work that you’re doing, often in the face of people who just don’t understand how things work.

Sue (22:36 – 22:37)

Absolutely.

Jimmy (22:37 – 22:45)

And we know lots and lots of really good strata managers are doing their best to do a decent job. And we salute you.

Sue (22:45 – 22:46)

Me too.

Jimmy (22:46 – 22:55)

And we also salute the people who listen to this podcast every week and make it worthwhile, us sitting down here and talking about strata.

Sue (22:56 – 22:56)

Thanks so much.

Jimmy (22:57 – 23:01)

Thanks for listening. And thanks, Sue, for being part of this yet again.

Sue (23:02 – 23:03)

Great. Talk to you soon.

Jimmy (23:03 – 23:04)

Bye.

Sue (23:04 – 23:04)

Bye.

Jimmy (23:05 – 23:35)

Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website, flatchat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple Podcasts, Google Podcasts, Spotify, or your favourite podcatcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you’ll get this podcast every week without even trying.

Thanks again. Talk to you again next week.