With the Sydney apartment market on a roll, residential apartments are continuing to make up an increasing share of the dwelling stock. However, many of these apartments are typically under a strata title scheme, which
Dr David Rees, Head of Research for JLL Australasia, believes is a big issue in Sydney.
According to the Property Council of Australia (PCA), there are 65,000 strata title buildings in NSW with around one quarter of the state population living, owning or working within a strata title scheme.
Strata title allows individual ownership of part of a property (generally an apartment or townhouse), combined with shared ownership in the remainder ('Common Property' e.g. foyers, gardens etc.) through a legal entity called the owners corporation (or body corporate, community association etc.).
Under the current arrangements unanimity among owners is required before a scheme can be terminated. Dr Rees explains that this can be difficult to achieve as there are usually incentives to be the last to hold-out. While this can discourage development and lead to crumbling apartment blocks, it does benefit owners as no one is an unwilling seller.
The NSW Minister for Fair Trading has released two draft bills to reform strata living in NSW, with a proposal to set a lower bench mark of 75 per cent owner acceptance for termination.
Dr Rees believes that the impact on the values of strata title apartments will overall be positive, with the proposals offering many owners and investors increased opportunity to participate in development upside. There will always be losers however, with Dr Rees explaining that many owners often value their home considerably more than market value.
Even while Sydney home and apartment prices have sharply risen, most properties are not on the market. A sudden notice to depart, even on independently established terms, may discourage people from living under strata title schemes. Dr Rees believes the proposals will no doubt enhance efficiency but suggests lowering the 75 per cent benchmark over a number of years.