Government Called To Reconsider Delayed Defects Bond


The NSW Government has been urged to consider alternatives to the 2 per cent strata defects bond, following news that it has deferred its July 1 introduction for the second time.

Lannock Strata Finance CEO Paul Morton, whose company provides funding to owners’ corporations and bodies corporate, said the bond will be a costly, ineffective and inefficient way to deal with the rising tide of defects in apartment buildings and the government should use the delay to find better ways to fix the problem at its source.

“The bond comes with a number of unintended consequences,” Mr Morton said.

“On the one hand the government has just announced a range of housing affordability measures to help first home buyers, but this legislation will add 2 per cent to the cost of a new apartment while falling short of its stated purpose ‘to restore confidence in the quality of new strata high-rise buildings’.

“Anybody who believes that the bond is a cost borne by the developer or builder is mistaken; it will be reflected in a 2 per cent rise in the cost of new apartments.

"Buyers are the losers under this scheme while developers, banks and government will come out winners," he said.

Mr Moron said the idea that a developer will give owners a "wad of cash" to fix any problems won’t work out the way owners think.

“When developers put the price up by 2 per cent it’s just the same as buyers putting up the cash themselves," he said.


"But it won’t be easy to draw on that cash. The government will have to have processes in place to ensure that all claims are valid and that will be costly and take time.

"Banks will make money from the additional borrowing requirements of their customers to fund the increased price of the property and the government pockets the interest from the bond.”

Mr Morton said administration of the bond could entail the equivalent of a whole new government department to deal with assessments, checks, balances, processes and claims, which ultimately would be paid for by the NSW taxpayer.

“Surely the better approach would be to fix the problem at its source – review the certification process, rein in shonky operators and make it easier for consumers to get information about the credentials of the developer and builder,” Mr Morton said.

“There is a lot taken on trust when buying off the plan in a new development and millions of dollars are changing hands with inadequate assurance about the quality of the finished product.

Mr Morton advised all apartment owners to ensure they followed up building faults and defects without delay.

Around a quarter of Sydney’s population currently lives in a strata scheme, but by 2040 that figure could rise to 50% as urban consolidation picks up pace and a shortage of land and affordability determine future housing choice.

A UNSW City Futures Research Centre survey revealed that 72% of apartments had defects, where the most common problems were water leaks along with outdated balcony balustrades, electrical faults and concrete cancer.

Apartment buildings above three storeys are not covered under the Home Building Compensation Fund.

The 2 per cent Strata Defect Bond legislation was approved in NSW Parliament in October 2015, to take effect in July 2016. The date was subsequently shifted to 1 July 2017 and has now been pushed back to 1 January 2018.

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