The Opal Tower – How to avoid potential issues when purchasing property
There are many factors which influence the various property markets around the country and the desirability of a property investment over the long term. One of the more notable negative events was the evacuation of residents in the Opal Tower on Christmas Eve. Cracks appeared on various levels in the building leading to concerns the project was under-engineered and concerns around the safety of the building were identified.
Are these concerns warranted?
Well, in some cases, yes… but what the Opal Tower and Mascot Tower issues have done, has led to conversation about implementing more stringent building regulations and a more conscious effort from builders, engineers and architects to focus on the quality of their delivery and the safety of the buildings.
Let’s put things into perspective. According to a 2018 CoreLogic report there was 251,51 apartments due to be built nationwide between 2018-2020. Even if we assume only 75% of those projects were completed in that timeframe, that’s approx. 188,000 apartments delivered across Australia. Whilst the issues surrounding the Opal and Mascot Towers were concerning for those property owners, the reality is these two projects represent a small fraction of the total new units delivered during a 2-year period.
Should an investor purchase an older property over a newer property?
The Opal and Mascot tower scenarios has understandably led to concerns around purchasing new or off the plan properties. Without delving deep into all the pros/cons of older properties versus newer properties, it would be naive to think that the recent issue with the Opal and Mascot towers are confined to brand new properties.
Think about how many times you’ve heard of someone having issues with an older property that requires considerable investment to bring it back up to standard. Is a 50-year-old apartment requiring major works to rectify a concrete cancer issue newsworthy? Probably not. The reality is that we’ve come to expect these types of issues from older buildings, however they can have as much impact (if not more) on their owners from a financial perspective as they are no longer covered under any builders warranty or regularity protections.
So how can you avoid potential issues with both new and older properties?
Without knowing the ins and outs of the construction industry, there are a few ways to mitigate purchasing a property with potential risks.
- Track record of the developers and their reputation –
One way to mitigate the risk of purchasing in risky projects is to know the track record of the developer and builder. Most reputable developers understand the value of a long-term reputation and a trusted brand. Ideally, they have built up a reputation over many years in the building and construction industry, and they are known to the local community
- Project selection, focus on owner occupier quality –
Along with selecting a property from a developer with a strong track record, another key point is to focus on developments that are aimed at the local owner occupier market, not just all investors. Typically, owner occupier purchasers demand a higher standard and are more demanding as ultimately they will be the ones living in the property. Owner occupier projects tend to be more boutique in their scale i.e. not high density, have larger floor plans and come with a higher level of finishes.
Older or established properties
- Research the background of the building – speak to neighbours and property professionals
Speak to neighbours, local property managers and anyone else you think might be aware of any issues with the property. If you’re purchasing in an apartment block and you can identify one of two that are rental properties, maybe call the agent and/or speak to the tenant directly to see what they have to say
- Order a strata report
If you’re looking to purchase a property that is part of a body corporate or strata structure (typically house or townhouse), then you should be able to obtain this report. A strata report typically includes the financial status of the scheme; pending or past building works, the cost of current levies, the likelihood of special levies and a 10-year budget plan. If significant work is required, then you may wish to abandon your purchase or offer a reduced price for the property.
- Order a pest and building inspection
A building report should examine all accessible parts of the property, including the interior and exterior of the building. The report might not always identify all key structural issues; however, it should identify any more obvious issues such as mould or rising damp. If you’re buying a property in an area where termites and pests have been a problem, a separate termite and pest inspection is recommended
- Try and find out how long the owner has owned the property – if not long, why are they selling?
These days is often possible to find out information such as the previous owners of a property, when they purchased/sold and how much they paid. This information can usually be obtained online or through local real estate professionals, and if you notice a pattern of short-term ownership then may want to explore the owner’s real motivation for selling further. If the story doesn’t add up, then it might be one worth passing up on
Overall the vast majority purchasers will have a positive experience when owning both new and older properties. In reality, a property is a living and breathing beast that will change over time with maintenance required, however the above tips should provide a greater chance of avoiding potential issues that owners have faced in the past.
It does however pay to undertake research prior to purchasing and if property is not your area of expertise, then it’s worth engaging professionals to assist you through this process. Binnari Property provides research and advisory services for investors looking to purchase brand new properties throughout Australia.