Victoria is going down a trail blazed by former NSW Building Commissioner David Chandler in planning to introduce defects insurance for apartment blocks.

The insurance cover is hoped to increase confidence in potential apartment buyers who will be needed if the housing crisis is to be resolved.

Developers of buildings over three storeys high were once required to insure against defects that become apparent within the first few years. That compulsory cover disappeared in 2001 when insurance giant HIH collapsed and builders were left with no cover.

However, as confidence in apartment developers waned, back in 2018 the NSW government introduced Building Bonds under which developers had to deposit a small percentage of the cost of the finished building which would be set aside in case there were defect claims.

Then, under David Chandler’s shake-up of the NSW apartment development industry, insurers were wooed back into the market, thanks to the state’s iCIRT star rating for the best and most reliable building developers.

Now, according to a story in apartments.com.au, the Victorian Government has passed legislation creating a developer-paid Strata Building Bond, establishing much needed consumer protections for purchasers of new apartments in the state. 

And insurers Resilience LDI say they are well down the road towards new regulation to allow developers to insure those new apartment projects with a 10-year Latent Defects Insurance (LDI) policy instead of the building bond.

The move is part of a broader strategy to stimulate both supply and demand in the new apartment market, says the website. Recent government initiatives include removing stamp duty on new apartments until October 2026 and encouraging increased housing density around 50 key train and tram corridors.

Resilience Insurance says it was the first provider to offer Latent Defects Insurance in Australia, with Sydney developers such as Deicorp, Urban Property Group, and Northland Group already taking up the policy.

Corey Nugent, CEO of Resilience Insurance, says the new legislation is a significant step toward rebuilding trust in Victoria’s off the plan property market.

“We work in an industry where buyers are cautious about purchasing off the plan,” Nugent told apartments.com.au. “As a country, we need people to feel confident in that buying process. Having a Resilience LDI on a building gives those buyers absolute peace of mind when transacting.”

Victoria’s Strata Building Bond scheme, which operates similarly to the same program in NSW, requires developers of apartment buildings with four or more storeys to provide a bond equal to two per cent of the total contract price.

This bond, held by the Building and Plumbing Commission, is intended to cover the cost of fixing defects found in common areas within a set timeframe after completion.

However, one of the key criticisms of the bond scheme is that it only covers common property—not private areas or structural defects. It also doesn’t address issues related to faulty materials, design, or workmanship.

Latent Defects Insurance, typically costing between 1 and 1.5 per cent of a development’s total build cost, offers far broader protection, says Resilient.

As a “first right” policy, it serves as the primary source of financial coverage in the event of structural issues. LDI covers the cost of repairing or replacing components damaged due to defects in design, materials, or workmanship, with a 10-year coverage period beginning from the date of the Occupancy Certificate.

The story claims that the NSW Government is expected to announce it will become mandatory in 2028 Latent Defects Insurance.