Podcast: Buying and selling the air above us

We are all used to being told that we only own the air inside our apartments’ walls, although not the walls themselves, depending on which uniquely quirky set of strata laws you live under.

But how about owning the air above your apartment block?  Or even the apartment block next door?

What would you do with it?  Why would you need it?  And what if the developer has already sold it to someone else.

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LISTEN HERE

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Also this week we look at the NSW government’s crackdown on embedded networks – and we start by explaining what they are.

And then we find the building all over Australia that are defying rising energy prices by becoming so energy efficient that their apartments’ bills can be less than $10.

TRANSCRIPT IN FULL

Jimmy  00:00

You’ve been a busy little journalist, haven’t you?

Sue  00:03

Yes, I have!

Jimmy  00:04

You’ve got a couple of big features in the Sydney Morning Herald and Domain, and online.

Sue  00:11

Yes.

Jimmy  00:11

And stuff that’s quite interesting. Well, obviously, it’s interesting.

Sue  00:16

Surely it’s always interesting!

Jimmy  00:17

Stuff that’s specifically interesting to people who live in apartments. You’ve been talking about people selling the airspace over their apartment blocks. You’ve been talking about people saving loads of money on electricity. And meanwhile, Mr. Matthew Kean has been telling us how he’s going to fix the whole embedded network thing.

Sue  00:40

Excellent!

Jimmy  00:41

So lots of talk about; better get on with it. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:48

And I’m Sue Williams and I write about property for Domain.

Jimmy  00:51

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

Air space, Sue… I mean, we hear all the time, people explaining to us (those of us who live in apartments), that we only own the airspace that is contained within the walls, and we don’t own the walls, but some of the walls we do own… Anyway, this is different airspace.

Sue  01:25

This is. This is the space on top of your building; above your building. And that’s owned by the owners corporation (usually), and it’s come into stark relief more recently, because we’ve got lots and lots of older buildings around the country, which are quite small; maybe three or four levels high, and they need a lot of maintenance. Maybe, they don’t have very much money in their sinking funds to do that maintenance. But now, a lot of people are looking at selling off their airspace and that means perhaps building a couple of penthouses on the top of the building, or building a few more levels up. You know, in areas where they’re allowed to, and maybe selling those off to other people, to fund all the maintenance the building needs and maybe, put a bit of extra money into the sinking fund, as well.

Jimmy  02:11

But, you discovered that some developers are pre-selling their airspace, is that right?

Sue  02:16

That’s right. I’ve never come across this before. I’ve discovered a couple of developers in Victoria… I haven’t discovered it in New South Wales yet, but it probably happens here as well… When they’re building an apartment building; maybe they’re going to build it nine-levels high, and then they’re saying to people “okay, does anybody here want to buy the ninth level?” And they buy the right to build something on top of this building. So they actually sell off the airspace themselves for extra money, before the owners corporation comes into existence.

Jimmy  02:49

Wow!

Sue  02:50

So then I talked to somebody who bought some air space from a building a few years ago now and she’s planning to build a couple of penthouses on top of this building, and I said to her “well, what do the regular apartment-owners think down below?” She said “oh, well, they knew it was always in place, so they don’t have any objection.” I mean, I don’t know; I don’t know what they were thinking, really. That’s astonishing. It just seems there are so many ways for developers to make money from buildings, quite apart from selling off the apartments.

Jimmy  03:19

Well, in this very building, there was an apartment; a little one-bedroom apartment, that came with the rights for the side of the building…The whole of the lower floor (the podium), the side of that, to carry advertising.

Sue  03:36

That’s right; big signage.

Jimmy  03:37

It was going to have huge signage, that you’d be able to see for miles and then along came the Sydney Olympics and City of Sydney said “no, you can’t do that.” Otherwise, it would be there.

Sue  03:52

Developers can be incredibly enterprising. I mean, who would have thought of keeping one little apartment and attaching signage rights? Because obviously, there’s lots of ways that developers can make money from buildings after they’re built. We know about management rights for instance, in Queensland; we covered that last week. Some of them have sold off air rights (if they’ve been able to), for telephone communication towers; those kind of things, on the top of buildings.

Jimmy  04:20

Although they don’t have much choice in that, because the telecommunication laws say that the providers can instal these towers, but they still have to pay for that. But you know, there’s a building just down the road from us; when they built it, they sold the signage rights on the roof to Avis Car Rentals, who at that time, had an office on the ground floor. But everybody now knows that as ‘the Avis building,’ which is not it’s name.

Sue  04:47

No. I think it’s got quite a nice name, really. Nobody ever knows that name anymore.

Jimmy  04:52

Pleasant Towers.

Sue  04:55

And I don’t think Avis is there anymore. It doesn’t make any sense.

Jimmy  04:59

Just as well they didn’t sell it to the other car rental place across the road, who’s slogan is ‘No Birds.’

Sue  05:05

‘No Birds’ building; how weird. But going back to airspace; selling off airspace can be a really good thing. I mean, the poster child for that is Sky Tamarama, as it’s now known. It used to be the old ‘Glenview’ in Tamarama. A really old building, kind of quite brutalist, on the top of a hillside. It’s got fantastic views, over Tamarama and over the ocean and the eastern beaches. They’ve built a couple of penthouses on the top floor, and with the money that they expect to get from those, they’ve renovated the whole building. It’s completely refurbished. They did that by getting out a strata loan (I think from Lannock, who’s one of our sponsors). The two penthouses are now up for sale for $20 million each, so that will enable them to pay most of the loan back. They’ve got a brand new building, with beautiful balconies; a fantastic wavy roof there, that follows the line of the ocean.

Jimmy  06:06

You know the best thing about that building?

Sue  06:09

 The views?

Jimmy  06:10

Being in that building means you can’t see that building.

Sue  06:14

That used to be the case, but I mean, now it’s quite a nice landmark.

Jimmy  06:19

To me, it looks like a monument to brown paper bags, full of used banknotes.

Sue  06:24

That’s harsh!

Jimmy  06:25

 From the past, I hasten to add.

Sue  06:29

But it’s interesting with airspace, because it depends very much on the area that you’re in; whether the the local council allows you to build up and lots of places are selling… If they’re not allowed to build up, they’re looking for other spaces within their apartment building to sell off to maybe make a new apartment, or to build new car parking, if they can excavate underneath the building; that kind of thing, as well. Potentially. It’s a huge area, really.

Jimmy  06:55

And one of the things in your story that surprised me (I had never heard of this before), was the developer buying the airspace above the next door building. Why would they do that?

Sue  07:08

Well, a couple of reasons. One is, it means that if they’re perhaps building a building, and next door there’s a low building, they might look at that building and think “oh no, somebody might build it up and then all our residents are going to lose these fabulous views that we’re selling the apartments on.” So they might buy the airspace, to safeguard the views from their apartments. So therefore, they can usually sell them for more, because they’re going to have great views.

Jimmy  07:35

Well yes, they’re not going to do it for free. The developers are not going to buy the airspace and not expect to get money back from the people who buy the apartments. There was that famous case down in Chinatown in Sydney, where people bought into an apartment block (and there was one up on the north shore, as well)… People bought into an apartment block, and they were assured by the developers that they owned the land in front of it, and they would never be built out and then, they were built out. 

Sue  07:39

As soon as they were sold, they built. That happens…

Jimmy  08:06

They were taken to court and basically, the Land and Environment Court said “buyer beware. You should have got written guarantees, rather than verbal promises.”

Sue  08:17

Absolutely. Another building in Victoria bought the next-door air-right’s so that they could actually cantilever balconies on that building side, over the building into the other building’s airspace as well, which was quite interesting, too.

Jimmy  08:34

Interesting and a bit creepy, I think. I just think you would feel like the building next door was kind of leaning over you all the time.

Sue  08:46

Well, it doesn’t really look like that in the photos, because the building next door is quite low and the balconies don’t come out too far. But certainly, if that building next door was going to build on their roof and carry on building up to the same height as the new building, they certainly wouldn’t have been able to have balconies there, because they would have been straight onto a brick wall.

Jimmy  09:10

That’s a really interesting area, that I’ve never really thought about. But it does add to the whole thing of developers doing deals; they turn up at your first agm  and say the magic words “oh, it’s just standard practice,” to get owners to vote in favour of contracts when they haven’t any idea what they contain, and what they mean for the future. Which brings us to the question of embedded networks.

[MUSIC]

Jimmy

Embedded networks, Sue…

Sue  09:50

Yes. Are you going to explain what they are?

Jimmy  09:52

Well, they can be quite benign and helpful things. It’s basically when a developer builds (as they have to do; they build an electrical system into their building)… But, they get it done for free, or very cheaply…

Sue  10:09

So this is another way developers can profit from a building, as well?

Jimmy  10:13

Yes. So they allow the provider to install their network into a building and then that network (especially in the case of electricity or gas);  become the monopoly provider for everybody in the building.

Sue  10:32

So the provider pays the developer for the right to be able to do that?

Jimmy  10:36

Well, they put the system in for free usually; they may pay them, as well. But you know, at the very least, the developer is saving a lot of money. I mean, the worst case I’ve heard of was the stormwater drain… Somebody who specialised in putting in stormwater drains, did a deal with the developer that they would put in the tank that holds back the water when there’s too much of it, on condition that the developer persuaded the owners corporation to sign a contract for 99-years, for maintenance of the filters, which would go up by 5% every year. Can you imagine?

Sue  11:17

 That’s a real cash cow.

Jimmy  11:19

And the developers came to the first annual general meeting of the owners corporation and they presented this as a fait accompli; “look, this is standard practice; this is happening.” People didn’t know what stormwater drains were and how much their maintenance involved and what they would cost. It was the strata manager who said “you know this is wrong.” They were risking that, if they blew the whistle on that developer, they would never get another gig from that developer. A lot of the money that strata managers make is not from dealing with your annoying phone calls… It’s setting up the systems for new buildings; it’s a huge part of their business. If they annoy a developer by turning up and saying “guys, this is really dodgy, and you shouldn’t be doing it,” they’re cutting off their noses. So anyway, the embedded network is anything that’s built into the building, which might have been done for free. In some ways, it can be really helpful, because owners can choose not to be part of that, but they might get benefits from lots of them being customers of the same company. What the New South Wales State Treasurer, and Environment Minister (and other things), Matt Kean, has announced recently is first of all, they’re going to put a cap on the energy prices that these embedded networks can charge. And then they’re going to do an investigation, to see if they are actually costing people more than they should. If they are, then they’re going to make them accountable.

Sue  13:08

Great. So maybe refund them?

Jimmy  13:11

I don’t know. They’re talking about doing research and looking into it. They’ve got this thing called IPART (which I had to look up), which is the Independent Pricing and Regulatory Tribunal. One of these great press releases from the New South Wales government, where they start talking about IPART and they do love their acronyms, and you’re going “I have no idea what you’re talking about…” But that’s what it is. It’s a tribunal that looks at pricing and price-gouging, things like that. They’re going to say to them “have a look at embedded networks. Some people are benefiting, and some people are being ripped off and the people who are being ripped off, we’ve got to find a way of stopping it.”

Sue  14:00

That’s excellent news.

Jimmy  14:01

And it’s one of these things; we’ve got an election (just in case you hadn’t noticed), coming up and it’s actually a newish thing. I was looking at the announcement they made a couple of weeks ago, about electric vehicle charging, and how they’re going to make it easier for people in strata to instal electric vehicle charging. But as somebody pointed out, well, you’ve kind of already done that, when you brought in the law that said any bylaws or necessary rule changes that were sustainable (in terms of the environment), only require a 50% majority. But I think the new thing is that, if you apply to instal electric vehicle charging in your apartment block, it cannot unreasonably be refused. It sounds like a very minor zooshing up of existing regulation, just to remind us that the regulation is there in the first place.

Sue  15:09

Because I think EV charging at the moment is quite sexy, isn’t it really? It’s on everybody’s minds, so why not pounce on that for a few more votes, perhaps.

Jimmy  15:17

And the Liberals are quite lucky in Matt Kean. He’s so pro-environment, he really is. I mean, he’s quite a dry economics guy, but when it comes to the environment, his heart is really in the right place, which will come in handy, when they lose the election and he becomes leader of the Liberal Party.

Sue  15:39

Do you think he is in mind for that?

Jimmy  15:41

Go put your money on that, right now. He’s also ferociously ambitious. If Perrottet loses the election (and his brothers come out of hiding)… You know, it did occur to me today, that the one person who’s probably quite happy with all the scandals that are emerging would be Eleni Pettinos, who’s slipped off the headlines completely. If they lose the election, traditionally the leader of the party quits and all the other contenders are leaving. Victor Dominello would have been a contender, you would think.

Sue  16:30

But how about another scenario; how about Matt Kean, suddenly defects to the Labor Party? Because his environmental policies seem very much in line with those of Chris Minns, in lots of ways. He would be quite at home in that party.

Jimmy  16:45

They wouldn’t have him though. He is economically quite right-wing. He’s socially wet, economically dry.

Sue  16:56

Maybe they could just have the wet bit?

Jimmy  16:58

He will still be in Parliament and he’ll be able to support environmental policies that are put up. He will not get into all this silly “we’re going to object to anything…” Unlike the National leader of the Liberals, who’s making a nuisance of himself, just because he can, and he sees that as his job. Anyway, enough about politics. The embedded networks are going to be given a hard look at, and we will hear lots more. There is another policy today about first homebuyers. I’ve read it; I don’t understand it.

Sue  17:44

They’ll be able to ditch stamp duty for the rest of their lives. I think that’s the message. They’ll pay something. They’ll pay land tax, instead of stamp duty.

Jimmy  17:57

But all they’re doing is not having to pay a lump sum every time they buy or sell a house. They’re not getting away with it, which is kind of the way it’s being presented. It’s already in place anyway, more or less; it’s just been extended a bit. So again, another piece of legislation that’s been zooshed up for the election. When we come back, we’re going to talk about (kind of related), buildings that are saving thousands of dollars, by being very careful and smart about the way they use electricity and other forms of power.

[MUSIC]

Jimmy

And we’re back. Sue, you wrote another feature in the past week; this time about buildings that are saving lots of money?

Sue  18:50

Yes. This started out as a story about net-zero buildings, because now lots of apartment developers are building buildings and complexes which they hope will be net-zero, in terms of producing carbon. They are all very sustainable, because really, it’s important now for developers to demonstrate their ESG credentials, their Environmental, Social, and Governance credentials, in order to get institutional investors. And for customers (the people who are going to buy their apartments), suddenly, it’s really important to have sustainable apartments. One, to help protect the environment, but two, so that their energy bills are going to be much lower.

We live in a time where our energy bills are going up hugely, so it’s a real selling point, to have small energy bills. I was thinking about a story, about all these new apartment developments which are going up now, which are promising very small energy bills, and then we decided to extend the story to buildings which have been retrospectively refitted with elements, which will bring their energy bills down. I

t was a really interesting story… It was looking across New South Wales and Victoria, and we found a fair few apartment buildings in both states, where this has been done. I think one of the standouts was an apartment building in Alexandria; Zinc apartments. One of the residents there has become an expert on sustainability and he’s overseen the installation of smart lighting; going from fluorescent to LED. They only go on when you walk into a common area, that kind of thing. And also, solar panels, and looking at batteries as well, and heat pumps for hot water, rather than electricity warming hot water. His electric bill last month was $6.28.

Jimmy  20:40

Wow!

Sue  20:41

When you’ve taken out the fixed fee, which is incredible, isn’t it?

Jimmy  20:45

Absolutely. I think I’ve been in the Zinc building… I think they’ve got solar panels on the roof, and electric vehicle charging throughout the building. And they’ve got one of these fancy systems that switches the power around the building, to where it’s needed most and then utilises the cheapest power that comes in. It was built that way; it’s an embedded network, but it’s an example of an embedded network that actually does a good thing.

Sue  21:15

It wasn’t built that way; this was all added extras. It was a 2005 building, but now, all this stuff has been put on. It’s kind an old building, but it’s been refitted.

Jimmy  21:28

Oh, wow. Well, there you go. It looks very nice.

Sue  21:31

Yes, absolutely. And there’s another building we looked at in Brunswick in Melbourne, and that was a Nightingale building; Nightingale Anstey. It collects rainwater. It’s incredibly sustainable. It’s got lots of solar, and the rest is green power and that’s an embedded network, so that’s working really well for them. They have no gas, and all their heating is hydroponic hot water, powered by a centralised heat pump. I have eight, actually.

Jimmy  21:57

I mean, that’s fantastic. And you’ve got about half a dozen of these examples in your story? It’s good to know. Because we hear a lot of these things in theory and you wonder how many of these are actually being followed through in buildings. Quite simply (as you said), it makes the apartments more marketable. It’s a feel-good feeling to be in a building which you believe is more environmentally responsible. A lot of people; they’re looking at bushfires, they’re looking at floods… They’re looking at these terrible things happening all over the world. You can’t ignore the climate change issue anymore and if you can’t ignore it, then you’ve got to do something about it.

Sue  22:49

Sure. And in apartments, sometimes you feel a bit helpless. In a house, you can instal your own solar panels, but in an apartment, if you all get together and agree, you can do amazing things. We’ve got some great examples now, of older buildings which have been retrofitted and are doing incredibly well. I mean, that would be great, an energy bill of less than $500 a year, wouldn’t it?

Jimmy  23:11

One of the things that comes up a lot (and I see it), is people apply a purely financial template to calculations for things like; you were discussing motion-activated lighting… I remember reading about a building, where they decided to go for low-emission lighting, and they said “well, that will pay for itself in three years. If we go for low-emission lighting and motion-activated lighting at the same time, then that blows out to 17 years, because you’re saving so much on the low-emission lighting, that the motion-activated thing doesn’t make such a big difference.” One of the dumbest arguments I’ve ever heard… You can have both, because it helps the environment.

Sue  24:03

But the truth is, when lots of people pose these kinds of things at agm’s, the thing that gets you over the line the quickest is if you can prove that there’s a financial advantage for people. The secondary advantage of not contributing so much to climate change is very much secondary. But you know, for an increasing number of people… Young people are much more environmentally aware than older people and younger people are moving into these buildings, and they will kind of gradually shift the thinking, I suppose.

Jimmy  24:35

I think so.

Sue  24:36

But the two coincide so closely; the financial and the moral, that they’re only gaining in momentum all the time.

Jimmy  24:45

Well, as we’re heading towards shutting down coal-fired power stations… One of the reasons that has accelerated is because it’s cheaper to have sustainable power. And that argument about the money; what you said about agm’s is so true. I mean, people write to the Flat Chat website all the time and they say “how can I persuade my neighbours to do something, or to not do something?” 90% of the time, I end up saying “tell them how much it will cost. Tell them how much it will cost if they don’t do this and they get taken to a tribunal, and they have to defend something that they don’t really care about.”  I don’t know how effective that is, but it seems to work. People stop writing to me, which is usually a sign that the problem is solved. Sue, thank you so much. Thank you for writing all that stuff. There’ll be links to that on the website; on the show notes that come with this, so people will be able to click on those links and read those stories, and find out even more about all this good stuff. Thanks for listening. Talk to you soon.

[MUSIC]

Jimmy

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 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.