They say strata is a world of contradictions and never has that been so obvious as this week when one report reveals a shortage of housing, most of which will need to be filled by apartments, yet one of our biggest and most highly regarded apartment complex builders has gone into voluntary administration at a time when apartment prices are rising.
Is it because materials have gone up but the availability of skilled workers has gone down, both due to the pandemic? Probably, to some extent. Or is it partly just bad timing?
But could it be that the idea of building a 366-unit scheme plus transport hub, plus 10-cinema complex, in Brisbane was too many eggs in an already brimming basket?
We have a look at the Probuild collapse and what it could mean for their purchasers and the industry as a whole.
Maybe some of those apartments were (and still are) going to be second homes or holiday let investments for Sydneysiders. Sue looks at people who have the best of both worlds with handy pads in the city and glorious getaways in the country.
Apparently selling your big house in the burbs to buy a small flat in the city and a cottage in the country is called “right-sizing”, a term surely coming to sales brochure near you, soon.
Also we celebrate our sponsors Lannock being selected to manage the NSW government’s interest-free loans for flammable cladding remediation.
And we introduce a free training program for strata schemes to find out all they need to know about electric vehicle (EV) charging.
That’s all in this week’s Flat Chat Wrap.
If you enjoyed listening to this podcast (or reading the transcript), please share it with your friends using the social media buttons on this page.
TRANSCRIPT IN FULL
They say it never rains, but it pours and it’s certainly been pouring…
My gosh, has it ever!
And it’s true about stories as well, it seems. We’ve got a whole bunch of stuff to talk about today. What have we got, Sue?
I think at first, we are going to be talking about the shortage of new apartment dwellings; new figures have come out, which are a bit shocking.
And then there’s the collapse of Probuild and news about loans for flammable cladding,
Yes, remediation work, for flammable cladding.
Well, we’d better get on with it. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.
I’m Sue Williams and I write about property for Domain.
And this is the Flat Chat Wrap.
According to a report presented to the Property Council conference last week, we have a huge housing shortage, in New South Wales.
Yes, particularly of apartments…
That’s Sydney, I suppose, especially. They’re saying that, because apartment completions have nearly halved, from their 2017-18 peak of 30,000 and free-standing houses have come back (in terms of builds), then that’s left a huge gap for housing the numbers of people that we need to house. Michael Koziol has written about this for the Sydney Morning Herald. I know I tend to be a bit cynical, but one minute we’re hearing there’s going to be a glut of apartments and the next, we’re hearing that there aren’t enough; what’s going on?
Well, I think in the past, there have been gluts of apartments in different areas, where there’s been a huge concentration of development (like maybe in Green Square in Sydney, and in Victoria, in the Docklands), but really, we should be getting a lot more apartments, all around transport hubs. That’s really still not happening; we are getting a few, but mostly, there’s a few houses being built around transport hubs, which provides nothing like the density we actually need, to accommodate a growing population.
Do you remember a couple of years ago, there was this fantastic plan to build apartment blocks on top of railway lines?
Yes, and it’s happened in a couple of cases, but nowhere near enough. Instead, they’re building more and more car-parking, instead of housing. You know, that’s fine for people who want to commute to the city from that train station, but really, there are fewer people now commuting, because of flexible working; a lot of people working from home a few days a week. Maybe, that might change, hopefully. There will be less demand for car-parking and more demand for housing, because in some ways, it would be pretty cool, living above a train station. Around train stations, typically, you’ve got a lot of restaurants; you’ve got a lot of cafes, you’ve got a lot of shops. You’d have all that there, very conveniently, down below you. I think people who’ve lived in some of those developments (like Top Ryde on the North Shore of Sydney), say they’re fabulous places to live. It becomes a kind of village; it’s sort of a vertical village, where you’ve got everything you need, within a very short distance of you.
So, who should be organising this? Where’s the driving force for this, not coming from?
Probably local councils, because so many local councils are still kind of against development…
Well, high development.
Yes, especially in the Eastern Suburbs of Sydney; places like Woollahra, where they’re really dragging their heels, about building new apartment complexes. I think they tend to think it’s going to be unpopular, among many of the people who live in houses.
Well it is; we know this. The NIMBYs come out in force.
Yes, but then, many of those people in houses are getting a little bit older, because it’s mostly baby boomers; they’re the only ones who can afford houses, really. They’re actually looking at some of these new luxury apartment developments, to downsize or ‘right-size’ into.
Is this the new thing, is it; ‘right-size?’ We’re not calling it downsizing anymore, we’re calling it right-sizing.
It’s quite handy, because it covers a multitude of options. So, in the past, you’ve had a three bedroom family house, that you’ve brought your family up in, and they’ve all moved out and so, you’ve just got the couple, rattling around in this big house. Now, they’re all looking at apartment developments, particularly luxury ones at the top end. Often, these apartment have three bedrooms, so they’re not really much smaller than the house. Really, you can’t talk about downsizing to these apartments anymore, because they’re much better designs, so they have a much better use of space. They are kind of right-sizing.
According to Chris O’Dell, Director of Consultancy GYDE (a former director of Housing and Population at the Planning Department), large multi-unit projects of more than 200 dwellings, had fallen 35% and those between 102-100 dwellings had the largest drop of 52%. Now, that suggests that people aren’t doing exactly what you’re saying they should be doing, which is building big blocks… Or, is it that this ‘right-sizing’ thing has got people with a bit of money tied up in their houses going “I can buy a really nice apartment, but I don’t want to live in a building that’s got 250 apartments in it.”
That’s right; they’re mostly choosing an under-100 apartment building. They really prefer maybe, 30, because with 30, you can have amenities; you can have a couple of lifts, and that kind of thing, but you probably don’t have a gym or a pool. It makes it a lot more affordable, because your strata levies are much lower. If you’re going to a big building, with lots and lots of facilities, it can be a lot more expensive. Many people in that position, don’t really want to live with too many other people.
Well, you kind of feel it’s like you don’t have any control over what’s happening in the building, because you know that in any block with 250 apartments in it, 150 people at least, will not be engaged at all with what the Owners Corporation is doing, partly because they’re investors. This is a slightly jaded view, I admit, but it very easily becomes a case of dealing with problems, rather than enhancing the environment and the sense of community. I think a lot of people look at an apartment complex with 250 apartments in it (and that might be made up of several buildings), and just go “I’m just going to be completely lost in there and I want to retain some kind of control over my life.” I can understand people want to live in smaller buildings.
Absolutely and with bigger buildings, there are just so many unknowns. If you’re a person who’s retired, then you’re probably living on a fixed income, so you can’t suddenly work longer hours… If there’s a special levie, you can’t actually recoup that money very easily. That’s going to come out of your living expenses, or the money you’ve put away for travel, so it’s a lot harder to cope with unexpected eventualities. So yes, I think retired people are much keener to live in smaller buildings. I think you’re quite right.
So again, local council are the people who are preventing a lot of this from happening… Who should be making it happen? Well, we’ve got a Planning Minister, Anthony Roberts; should he be sitting down with his planning people and saying to every LGA in New South Wales that they need to provide, or allow for, X number of apartments in their area?
Absolutely and they all do have targets, but many of them are missing those targets.I think the difficulty is that so many issues become really politicised these days, so when Anthony Roberts says to local councils “no, you’ve got to allow higher-density in your suburb,” suddenly there’s a campaign against it… There’s people speaking out against it, that kind of thing. It becomes a real problem, I think, especially with a government that constantly has one eye on upcoming elections, so they’re almost frozen. They just don’t do the kind of things that they’re meant to be doing, or they know that are wise and they’re all after short-term popularity, because they’re looking after keeping their seats.
It’s all very well to say there’s a shortage, but we’re looking at the other side of the coin this week; one of the biggest apartment developers in Australia, has gone into voluntary liquidation.
Yes, the builder, Probuild.
Now, they’re huge; they do a lot of academic buildings and things like that, but they have a few major apartment blocks around, don’t they?
Both in Sydney and Melbourne.
And in Brisbane as well. One of their biggest ones is a 440 apartment building in Brisbane. That’s become really difficult for them. It is actually quite hard at the moment for developers, because you start a big project… You sell your first tranche of apartments off-the-plan, in order to raise your finance (so you’re selling them at certain prices), and then in the past couple of years, with a pandemic, there’s been huge supply disruptions in materials. The price of materials have spiralled, but you’re still locked into those apartments, that you’ve sold for a certain figure. There’s no way you can raise those prices, to make up for any losses. I mean, obviously, you can raise the prices of the next stage and the next stage and the next stage, but you’re still locked into, maybe, loss-making, right from the very beginning. I think a lot of builders work on such slim margins these days; it can be really hard if anything untoward happens, like the pandemic, as we’ve seen.
Do you think this is a case of, it’s not that Probuild is not viable; it’s just that they need a reset?
Maybe so. I mean, it’s a South African owned company.
They tried to sell it to a Chinese company, didn’t they, and the government blocked them?
That’s right. They obviously thought it would be a good idea, for the Chinese not to buy it, but now maybe, they are thinking the alternative is much, much worse now.
So, a 400 unit block (I assume it’s several blocks), in Brisbane… I can’t say I’d be rushing to buy in there.
I mean, there must be lots of people, who’ve bought off-the-plan in some of the projects that they’re building (I mean, they’re a good builder; they have a great reputation), who must be really worried sick now, that they might be losing their money. Obviously, the administrators are doing their absolute best to make sure that people don’t come in and pick off the best projects…
You mean asset-strip?
Yes, that’s right and leave them with the projects, which are not so profitable. They will be kind of hoping to keep everything going, but you just never quite know,
Well, maybe the Queensland Government will step in and use some of that money that they get from the presale of management contracts and pump that back into the project?!
That would be nice, wouldn’t it?
Highly unlikely, but it’s a different scenario, up there in Queensland. The whole apartment building and the approvals and all this stuff about pre-sales of contracts; it can be the Wild West up there, I think. It doesn’t surprise me that the rest of the company seems to be trundling along (with difficulty, but getting stuff done) and then a project in Queensland has pretty much sunk it.
I think there’s been a couple of ones which haven’t been making very much money, but that’s certainly been a real money pit, that Brisbane Tower.
Okay, when we come back, we’re going to talk more about right-sizing, specifically about people who have a place in the country and a place in the city.
Sue, the other day, you had a story in the Sydney Morning Herald about people who own two properties?
That’s right. There’s been a new report out from the property consultancy Knight Frank Australia, that has found that there’s a lot of people right-sizing now. They’re buying a smaller pad in the city and they’re buying a bigger place in the country, or on the coast. As a result of the pandemic, we all apparently, want to live on the coast or country. I mean, I live in a city and I love it; I don’t want to move out to anywhere else. There are lots more people, who are happy to have two homes and obviously, by selling a bigger home in the city, where prices have gone up so much, particularly in Sydney… I mean, in Melbourne too, but particularly in Sydney, you’re making a lot of money, so you can afford then, to buy a much smaller place, and often, a place in the country as well, if you get into the country quickly, because regional prices are going up all the time, as well.
Now, what we’re hearing here, is what I call the ‘Byronisation’ of rural property, or rural communities, where people from the city are coming in and throwing money at properties. They’re pushing up rents, and they’re pushing up property prices. At the same time, they’re able to do that, because property prices are going through the roof back in the city. How can ordinary people afford to buy even one house?
Yes, that’s a real problem.
Or, even rent, you know?
People on lower incomes are having a really, really tough time. Well, certainly there’s a drop in the number of first homebuyers, because they simply can’t afford it. They now have to raise such big deposits, in order to buy. It’s really difficult for them and in the regions that used to always be safe places for them to buy, to get a foothold in the property market; now, prices are quite amazing in the regions and the coastal areas. It’s very hard for them. Also, rental vacancy rates are incredibly low, so there’s a real shortage of proper rentals for them, as well. I mean, Airbnb and the other short-term letting platforms are contributing to that, because a lot of these people who own two homes; if they can afford two homes, that’s great… They want to keep both homes empty when they’re not using them, because they want to keep them exclusively for themselves, but there are other people who will put their country or coastal home and maybe even their city home, on a short-term letting platform, so they can make money when they’re not there.
Hmm. And as we discussed last week, it depends on whether it’s their principal place of residence or not, in the city.
And also whether it’s a lifestyle decision, or whether it’s an investment. If you’re buying a place, and you think “I just want to make money from it, too…” It’s kind of interesting. Some people are renting them out, some people are managing to keep them both empty (which for them is their preferred option), but for local people living in those areas, who can’t afford a similar home, it must be so hard seeing these places empty, or just being filled up at weekends.
This is kind of universal, because we were watching TV the other night, and it had one of these endless shows, where they get a minor celebrity to travel around bits of Britain. They had this guy in the Lake District and he went to this popular area and they were talking about the effect of Airbnb in that area and how you couldn’t buy a little cottage there for anything less than 500,000 pounds, which is like a million dollars, basically.
And the Lake District used to be a really, really cheap place to live, because it doesn’t really have many urban centres. It doesn’t really have any facilities; you kind of go there to be a bit remote and isolated, if you were a novelist, or something,
The Kendal mint cake industry can only support so many workers. But you know, it is universal; you see it everywhere. Different countries in different cities have tried to do stuff about it, like limiting Airbnb to 90 nights a year, in some areas. Apparently, that’s the benchmark for most countries and big cities, that aren’t in Australia. I just wonder; a lot of these people that you’re writing about, maybe they do go on Airbnb, but I think, do they really? If we could afford it, we would have (theoretically), a place in the country, and a place in the city, and we wouldn’t let them out to other people.
No, because, why would you want somebody else sleeping in your bed?
You wouldn’t, I hope. Having recently stayed in a friend’s house (and it was lovely house and it was a great place)… They very kindly lent it to me, so I could do a bit of writing. I just felt very aware that this is somebody else’s house snd I had to be very careful about; I thought I’d permanently stained a glass with red wine. I don’t think that is physically, chemically, possible, but I thought I’d permanently stained it, because it had this kind of deep red glow at the bottom of the glass. I washed it and washed and washed it and it didn’t go away and I thought “oh my god, I’m gonna have to go and find these identical glasses and buy them a new set,” and then I looked in the cupboard and said “oh, there’s also a blue one and a green one.” The point I’m making is, if you had two properties, you’d want to be able to relax equally, in either of them. You’d want them both to be kind of two parts of your home, which (when you consider that a lot of people can’t even aspire to own one home), seems very luxurious. This thing about affordable housing; what’s the answer? Build cheaper homes? No, you don’t want crappy homes built.
I did a piece last week as well, for the Sydney Morning Herald, about a Beachcomber house, which has been sold. It’s one of Nino Sydney’s (the really fabulous architect), who is the man credited with bringing design to the masses, really. He designed these fantastic Beachcomber houses, on stilts.
And they’re kind of rectangular?
That’s right and they’re all kind of glass… Lots of glass and lots of air and lots of light. They were incredibly affordable and he did that as part of LendLease. He was the chief architect there, many, many years ago and that was his mission; to provide good quality architecture for people who might not necessarily be able to afford it. LendLease developed lots of these houses, all over the country, and this was one of the first and one of Nino Sydney’s favourite houses. Unfortunately, Nino Sydney died earlier this year, and the owners of that house (who had worked on its renovation with Nino Sydney), are now selling it, and the owner of the house was really interesting. It’s in the Blue Mountains, in Sydney and he was saying that even if a developer makes an offer for it, he’s not going to accept it, because he wants that house to remain. He wants somebody else to buy it, who’s going to love it and really appreciate it and he says this is really the solution to some of the housing crisis; cheap, low-cost housing, which is affordable for a lot of people and in places where the median house price isn’t so high. I mean, he’s in the mountains, and his part of the mountains has gone up a lot, but certainly not as much as most places. So yeah, we should be looking at these alternative solutions.
Are we making a mistake in apartments, in trying to make every apartment block a five -star apartment block?
Well, you want it to be well-built.
Yes, but when you look at the variables, like the finish, and all the cupboards and the space; acoustic insulation and things like that… I mean, look, it hasn’t been hard to achieve a one-star building in this state, for the past 20 years, because that’s what a lot of shoddy developers have been aiming at. But, if you set benchmarks for each level, and said “this is a one-star building. It will not cost you any more than x amount, but don’t expect that you’re going to be living in the Ritz and this is a three-star apartment, and it’s going to be a lot better than that one, but it’s not going to be as good as the next one, because here are the benchmarks that it will achieve, but that’s all it will achieve.” Is that feasible? Is that reasonable?
I think a lot of architects are now working on low-cost buildings, which are quite high quality as well. They may have compromised in terms of size, but then they still have really good design, so the apartments still flows. It might be smaller, but you can kind of fit in… Sometimes they sell them now, with fitted-in furniture, so it just all works. Sometimes, they do it in materials, which aren’t going to age, that don’t require an awful lot of maintenance. They might be walkups; they might not even have lifts, but they’re really usable buildings. They can look quite basic and unadorned, but in fact, inside, they work really, really well. Lots of architects now, are really experimenting with those kinds of buildings, so absolutely, it’s quite possible.
Where I’m coming at this from is, if you say to the prospective purchaser “this is the quality you can expect and no more,” then subsequent buyers will know. It’ll be somewhere, on a piece of paper, that this is a one-star building, this is a three-star building and that will keep the prices down. If people want to buy their fabulous penthouses, with all amenities; induction cooktops, and all that stuff, well, they can still do that. I think we’re getting into a situation here, where people are expecting all apartments to be five-star, and they cannot possibly be that. Also, people are paying prices, over-the-top, for apartments that are just not up to scratch and that’s a big part of the problem. When we come back, we’ve got a whole basket of developments in apartment living; little bits of news, here and there. Last week, we heard from David Chandler, who was very anxious to point out that he was responding to a question and not issuing government policy, or anything like that, about older buildings. It’s caused a bit of discussion and we had one of our biggest listener-ships to the podcast, as a result of that, which is kind of cool. It was funny; I got a post on the Flat Chat forum from somebody saying “I know exactly where he’s coming from. We live in a building; it’s old, it’s falling apart… It would never survive a fire ordinance check. Millions of dollars of work would have to be done on the building.” Presumably, that means it might not survive a fire, as well. It just shows you, that when you think about all the old buildings around, that this is a problem. It is growing; those buildings aren’t getting any younger and there doesn’t seem to be any kind of planning ahead, for that. I think this a conversation we’re right at the very beginning of and maybe in the solutions to that problem, we’ll find answers to things like affordable housing.
Let’s hope so.
I know there’s a lot of work being done on apartments with flammable cladding and I think there’s been a big development on that this week, hasn’t there?
Well, the government are offering interest-free loans to people, to get their cladding fixed. I think there’s 215 buildings that have been identified with (I think the official term now is), combustible cladding. A lot of people didn’t realise that flammable and inflammable mean the same thing, so they call them combustible cladding. They said they’re going to fix it. They’re going to offer the buildings that have the problem, interest -free loans, and they have identified our sponsors, Lannock Finance, as the official lending provider for Project Remediate, which is kind of cool.
Yes, absolutely, because I think the head of that company, Lannock Strata Finance’s Paul Morton, has for a long time been saying to the government “we can provide loans for this kind of work.” I think some buildings have been a bit nervous about taking out strata loans, because they don’t quite understand what equity they can offer, to secure those loans.
Well, you can’t offer anything.
That’s right, but they’re kind of getting their head around it, now and I think, because the government is saying “okay, let’s do these loans,” suddenly people are thinking “okay, well it must be alright then.” It’s a really good idea.
What you want here is a company like Lannock, who already have the infrastructure in place to deal with Owners Corporations, to establish their loans, their repayments, and all that, rather than all these Owners Corporations; their chairperson and treasurer having to turn up at Fair Trading and say “can we have our $1.37 million now, please?”
Because a lot of people won’t understand how to structure the repayments. Maybe you’d have one special levy collection per year and then repay it over five years; something like that.
Or, just kick up the levies, on a quarterly basis. That’s something that came up in the forum again this week. It has been there before, somebody saying “we need some work done. Some people can’t afford a special levie and some people can afford a special levie and don’t want to have to pay interest on a strata loan…Can we split the payment?”
And you can’t, can you?
No, and the government really needs to look at that actually, because, why would you benefit one side, to the cost of the other? The people who can afford to pay, they are going “well, I really don’t want to be paying interest, becaause I’ve got the money. It’s not earning interest in the bank, so can I please just pay my share, upfront? Other people (who are maybe, as you mentioned before, on fixed incomes), are going “I can’t afford to come up with $10,000 out of nowhere. I need this to be spread.” I think the government really needs to look at making an exception on levies. The problem is that the strata law says that all expenses have to be paid through levies, which must be calculated on the basis of your unit entitlements and that’s where it all falls apart.
And when we’re looking at that extra expenditure; there’s also another interesting development, where lots of strata companies are looking at putting in EV charging stations into their buildings, and that obviously involves a lot more money. We’ve got Strata Answers (which happen to be another of our sponsors). I’m sorry, it just so happens that the two of them are in the news this week.
Just another sponsor. Listen, the reality is that we only have good people as our sponsors. Good people do good work and that’s why we promote them. I don’t know if it even counts as promoting them. We mention them on the website.
Strata Answers are putting together a pilot champion course, looking at the whole issue of putting in EV charging stations and networks in their buildings. They’re bringing together all these owners, to try and educate them, and then they will educate others about the finance of it; the different possibilities that you can instal… How it will service owners and obviously, tenants as well. That’s a really worthwhile programme, I think.
So, if I’m reading this correctly, they’ve got eight spots, for the pilot course and Owners Corporations have to apply to them, to get approval, or to be accepted on the course, in the first tranche. If it works, it’ll be much, much bigger, later on.
And it’s absolutely free, I think, isn’t it?
Well, that’s a great opportunity. Guys, get onto this. The email address for their landing page on that project, will be in the show notes for this episode. I think that’s it for this week, Sue, isn’t it?
Yes. We’ve covered a lot of ground, haven’t we?
We have! Thank you Sue, for your contributions, which are invaluable.
You’re being very nice to me, Jimmy, for a change!
See, invaluable is like flammable and inflammable and valuable and invaluable.
They both mean exactly the same thing.
There you go. There is a bit of invaluable information for you.
There must be a word for that, mustn’t there, when two words that sound opposite, actually aren’t at all?
And, we will tell you it next week. Thanks for listening.
Thank you. See you later.
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, Stitcher, or your favourite pod-catcher. Just search for what 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.