Some big, big issues have shuffled shamelessly into the glare of the podcast spotlight his week.
Firstly we talk about the buying and selling of management rights and how that has become a huge, $8billion dollar business nationally.
Should we be worried that this is starting to creep into NSW and Victoria from Queensland, where the legalised rorting of apartment owners through pre-selling the rights to run their buildings all began?
What does it mean for owners in new buildings in the other states who will doubtless be told that selling 25-year contracts to commercial entities is “standard practice”?
And what are the implications for Queensland owners’ desperate attempts to get its pro-developer state government to put a cork in the bottle even if the genie can’t be persuaded to slide back into it?
The other big issue is the appalling state of rental affordability in Sydney, especially, which includes a dire prediction from Jimmy that sounds suspiciously like a disruptive call to action.
Finally, we have big news about the podcast itself, plus our Lock up and Leave Pick of the Trips, and a tribute to our most dedicated listener of all.
TRANSCRIPT IN FULL
Big news in the Fin Review over the weekend.
Yes, it was actually a bit shocking, wasn’t it?
Profitability on management rights has gone through the roof. We’re going to be talking about that, and we’re going to be talking about a new index that shows that life is much worse for renters than we even thought. We’re going to talk about big news for this Flat Chat podcast. And we’ve got a fabulous idea for somewhere for you to go on holiday, to get away from the rent crisis and management rights and stuff.
To cheer yourself up.
Cheer yourself up indeed. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.
And I’m Sue and I write about property for Domain.
And this is the Flat Chat Wrap.
Tell us what management rights really are; what is the management rights industry, Jimmy?
Well basically, it started in Queensland, where they assumed that ordinary apartment owners would not be able to look after themselves properly. And so they sold, or they allowed developers by law, to pre-sell the rights to manage buildings and rentals in those buildings, for contracts of either up to 10-years, or 25-years. So this is basically a way of putting money in developer’s pockets.
Long after they’ve sold the apartments to people.
Like everywhere else in Australia, the developer’s contracts and agreements expire at the first AGM, with the specific exclusion of management rights contracts. So the developers will sell management rights to somebody and you arrive, you bought into a new apartment in Queensland, discover that you’ve already got a 25-year contract, for servicing your apartment, which is almost impossible to get out of. I mean, every case I’ve heard of, where the owners have said “look, these management rights people are not fulfilling even the contracts that they’ve got,” the courts in Queensland will not ever rescind a management rights contract. Now this has grown and we call it the ‘Queensland disease’ here.
Poor Queensland. We’ve had experience of that here in New South Wales, as well. We’ve had personal experience of that. A new apartment that we bought suddenly (we had no idea)… The developers produced a building management contract, that we had no idea had been agreed to. Actually, our strata manager had agreed it and fixed our seal onto it, without even our knowledge. So we were faced with actually either going to court and facing a long legal battle, or…
Just throwing the building manager out.
Yes. I mean, it was risky, but we actually did that. We marched the building manager out, who had been appointed by the developer, and he was absolutely hopeless. But in fact, to show how hopeless he was, as he got into his car to exit the building, his car broke down. So we ended up having to push him out.
So you literally pushed him out.
But that was different.
Luckily, they didn’t come back to us, because they could have.
They got you in another way, though. They got you in another way, on the defects, as they said they would. But that was different; that was not a pre-sold contract. We’re talking about contracts in Queensland, where the developer turns up, having sold the contract to somebody and the owners have no say over who their managers are going to be. The sale of these contracts is now big, big, big business; huge business. Apparently, it’s just gone up 67% in the last year, and is worth $8 billion nationally, that’s nationally; not just Queensland.
And the problem is, (apart from Queensland, where it’s a huge problem), that it’s spreading into New South Wales.
Right, down the coast.
Because we have heard recently that a new building in the Northern Rivers, which had a Queensland developer… The Queensland developer said “well, I’m going to sell the management rights contracts.” I shouldn’t say ‘sell.’ They said “I’m going to ‘award’ the management rights contracts.” Somebody in New South Wales said here in New South Wales, all contracts expire at the first AGM, and the developer said “that’s okay, because I’ve got enough votes at the first AGM, to make sure this goes through” and that’s what has happened and this building finds itself with a 25-year management rights contract.
But surely… I mean, there were changes in New South Wales a few years ago, to outlaw that kind of thing. Is this just a way of getting around it, because the developer had enough votes to manage it. But how can a 25-year contract be legal?
Because it’s a contract; it comes under business law. In strata, the strata manager has an initial one-year contract, and then it’s renewable every three years, which is reasonable. The first one year gives the owners a chance to work out how the strata manager operates, and develop a relationship with them. If they turn out to be a clown car of idiots, then they can get rid of them after a year. Building management doesn’t have that restriction. I think the maximum is a 10-year contract, but they come in as 10-plus-10-plus-10, so you get your 10-year contract and if the owners corporation hasn’t got its eye on the ball when the 10- years is up, they will find that suddenly, the management has rolled over. Now this 25-year contract seems to be a 25-year contract for the right to manage the rentals in the building. You’re talking about the holiday area up there. I don’t know what the details are, but it sounds like this has gone through. Now, in the story in the AFR, it mentions a property in Sydney, which has just sold management rights for $3 million. Sue, you’ve got some information there from the story in the AFR, about management rights. Now, we’re not implying in any way that there is anything dodgy or untoward about this. It’s just an indication of how valuable management rights contracts are. So it has spread from Queensland to New South Wales and Victoria.
Management rights to the Aspire Tower in the Melbourne CBD, were recently sold for $3 million. And then in Sydney, management rights to the Park Regis apartment hotel in Cremorne on Sydney’s lower North Shore sold for $5.2 million and management rights in the 94-room Flynns Beach Resort in Port Macquarie just north of Sydney, sold for $1.9 million. It seems to taking off everywhere.
It’s big business. These ones that you mentioned, they sound like they might actually be apartment hotels, so they’re not necessarily residential strata schemes.
Two of them are, but the Aspire tower in Melbourne is an apartment building.
Well, there you go. So now we’re finding that owners… I mean, we’ve just been through this recently, where owners turn up at the first AGM; only half the owners turn up and half of the owners who do turn up, have never lived in strata before.
So they have no idea what’s happening. They think “oh, management rights. Okay, well, that’s good. The developer knows the building, so the developer is going to appoint a building manager who obviously is going to be an expert in this area.” And of course, we just have too much faith. The developer is only in it for the money.
Their reputation is at stake, as well. But people think that (as we did), that some of these scams seem so egregious that there must be a law somewhere to stop them, which is naivety of the first order. But it’s interesting; you do trust that the developer is going to look after you and not lead you up the garden path. It was interesting that at that AGM, our building manager had put forward a contract for two-years-plus-two-years repeating. And the strata manager said “Hmm, I think we’ll just make this a one two-year contract and see how we go.” That was a smart thing to do. They could have come in with a 10-year contract. Now, a lot of these things are going to change in New South Wales, but $8 billion in management rights, most of which is happening in Queensland so far… I know that the Queensland branch of the Strata Community Association, which is the strata managers professional body up there, are lobbying very, very hard for the government to start putting limits on new contracts. A 25-year contract for anything is just ridiculous.
Absolutely. It’s just so hard, I think. You get a new building, you go there, you’re just looking at the fixtures and fittings and you think “wow, this is going to be so nice. This is my new life here.” And you don’t really take much notice, to be honest, at the contracts and all the background stuff. You’re just dazzled by it; you’re looking how far it is to the nearest school and the nearest shops.
And the new car smell of the apartment.
It’s a great time in your life. And then suddenly, you discover there’s all these extra costs because all these contracts have been signed, either in your absence, or that you had no idea about and you’re up for lots of costs. It’s a terrible blight on apartment living isn’t it? There are more and more of us going into apartments and we’re getting higher density cities. We’ve got to make sure apartment living is a fair and just platform for everyone.
We had John Minns, the Strata Commissioner on the podcast the other day, and he’s very much in favour of a two-stage initial strata AGM, so that you come in, and basically, you just sign the insurance policy and elect the strata committee. Then they go away and pick the contracts apart and come back and say “okay, we’re going to change this one, we’re going to reject that one and get another quote.” Which makes perfect sense, because at the moment, the law demands that the developer hand over all the contracts related to the building 14-days before the initial AGM. That’s just not enough time.
I mean, some of these contracts are massive.
Especially if you’re in a community title system, where you’re building is one of several. You’ve got your bylaws and contracts and then you’ve got the bylaws and contracts for the whole scheme. And we have seen a contract… Remember, we pulled out of buying an apartment in Waterloo? When they handed us the contract, it was in a big ring binder and our conveyancer said “this is going to take me two weeks to get through this.” They said “well, you’ve only got a week.” We pulled out and we would have made a huge profit on that.
Probably! It’s actually a really nice building; it turned out quite well. But you just never know. I mean, some solicitors don’t really have the experience with strata, so they’re looking at the documents for the first time and they’re not quite sure, so they have to look up what’s what. 14-days is just too short, isn’t it? Good on Minns for trying to get it changed.
And hopefully that will help with the management rights thing, because I don’t want to see that virus spreading from Queensland. Especially since it sounds like Queensland are finally going to do something about it. Their problem is, that the vested interests in the management rights business there are the management rights holders, the people who trade them, the developers, and the banks. Banks make a lot of money out of these, because they loan the money for the people to buy the management rights. So it’s a big chunk of powerful people ranged against any change, but it will happen. Okay, when we come back, we’re going to talk about the latest index into rental affordability. That’s after this.
And we are back. Well, Sydney has gone to the top of the pile, in another aspect of modern life.
And not such a great one. Well, even the bad news has a silver lining for some people, I suppose.
Well, we now, along with Hobart, have the least affordable rentals in Australia. It’s gone up something like 16% in the past year. So what has happened is, there’s a new index released. It’s an annual thing released by Shelter, the housing group and SGS Economics on rental affordability. It makes pretty grim reading, doesn’t it?
It certainly does. It was showing that rents in Greater Sydney have gone up 18.2% in a year and the income of people in Greater Sydney has gone up by 2.4%. That is a huge, nearly 16% difference.
And one of the interesting things about this survey is that it breaks it down in a way that makes it much more understandable, the pressures that people are put under, because there’s a table there of people’s income and the percentage of that that they pay on rent. And it goes from low paid workers and students, down to a double income family with kids. And the affordability register for these is quite amazing, because I think it’s only the latter group, the double income no kids (or they’ve got kids)… They are the ones who can afford it most, but they’re the only ones on that list.
I mean, the list is about 10-strong. A dual income couple with children can afford kind Greater Sydney, but nobody else can. That means a single full-time working parent, a single income couple with children, a minimum wage couple, students in a share house, hospitality workers, a couple of pensioners, part-time workers and parents on benefits… Oh my god, this is very depressing reading! We’re having a depressing time today.
So one person on Job Seeker has to pay 137% of their income on their rent. So how do you do that?
Wow. And it’s so sad, because it’s making Australia I think; you know, there’s a real division between the haves-and-the-have-nots.
And there never used to be, I don’t think.
Not to the same extent.
That’s right. So it’s wealthy people are getting wealthier and you kind of think, well, that includes anybody with a bit of investment property, because investment property, the value is going up and also charging high rents. It’s kind of the propertied classes, versus the unproperty classes really.
We were talking about this the other week, about how, especially when we said to John Minns that our problem with the government decision making is they keep seeking the perfect solution, which doesn’t exist, and they don’t give things a try. Okay, the government is going to put a certain amount of money into building new houses, and a lot of them are going to be affordable, etc…. It’s going to take too long.
It’s not enough.
And the idea that by limiting rent increases, you’re going to stop people from investing in property, doesn’t make sense to me either.
And it’s interesting; yesterday, I gave a speech at the New South Wales Senate, because they’re celebrating the 200th anniversary of the first Legislative Council in New South Wales. And that’s the first in the whole of Australia. I was talking about the first five members and historians were talking about the beginnings of Sydney. They were talking about how when we introduced trial by jury here (which was also the same year, 1823), the only people who could sit on the jury were the propertied classes. That was 200 years ago and now (I mean, obviously, you can sit on jury if you don’t have property, but you just can’t afford the bus fare).
To get to the court.
It just seems that the divisions have widened and it’s a really inegalitarian society now, even worse than it has ever been.
I mean, it just seems to me that every week there seems to be more homeless people on the street, asking for money, and that’s always an indicator that things are not going the way they should.
That’s right. And, you know, regular people with regular jobs; just not being able to make ends meet and wondering how they’re going to pay the electricity bill. We’re going to have the hottest summer on record probably this year; how can anybody pay for air conditioning?
I’ve got a feeling that if they don’t do something soon, within a couple of years, we’re going to see refugee camps in the middle of our cities. We’ve already seen in Hobart, 10% of the local housing stock is given over to holiday rentals. We’ve seen people camping in the parks there, because they just can’t afford to rent a house.
Do you remember the camp in Martin Place? That was a protest, but it went on for a long time.
Sooner or later, a radical housing group is going to say something like “hey, 10 of us are taking tents to Centennial Park and if you want to join us, now would be the time,” and once that starts, we will see refugee camps in Australia. Not as a political protest, but so that people can live undercover, and reasonably securely, near a toilet. That sounds like I’ve just done a call to action.
Hopefully, it won’t get to that.
Let’s hope the government really heed that.
When we come back, we’re going to talk about some good news, about Flat Chat and a great idea of a place to go on holiday. That’s after this.
So tell me the great news about Flat Chat, Jimmy. This is very exciting!
I was checking how many downloads we’ve had on our podcast, because I don’t know if our listeners recall, but about a year ago, I changed the platform to the new one, which I’m very happy with and we seem to be growing in numbers. But what I didn’t do, and it has this facility, where you can add in all the podcast numbers from your previous platform, which is just a tedious thing of looking at the names of your podcast and typing the numbers in. Two-and-a-half years of weekly podcasts… I had to type the numbers in.
Have we been doing this two-and-a-half years now?
More. So I did it last night; I typed the numbers in and we are very close to 70,000 downloads in total. That is 70,000 times that people have listened to our podcast. Now that could be one person who’s listened to it 70,000 times, or it could be 70,000 people who’ve listened to it once. But I think it’s more like, our 30-day turnover is 300 listens every 30-days; something like that, which is pretty good actually. It’s not huge. It’s not what you would call viral, but it makes it worth the effort. And the weird thing is, we’re sitting on 69,000-something…. Unless things go horrendously pear-shaped in the interim, the week that we will take over the 70,000 is also the week of my 70th birthhday.
We will be in Fiji.
Yes, we’re celebrating Jimmy’s big birthday.
And that neatly brings us to our Mild Rover spot, ‘Lock up and Leave.’
Yes. One of the deals that we’ve got on the Mild Rover website now is a golf holiday and Spa in Fiji. It looks pretty good, really. I mean, I hate golf, but you like golf.
You like spas.
I do. So that’s good; one person who likes the golf, can play golf and the other person who hates golf can go to the spa.
Now, we shouldn’t assume that that split would be male/female.
No, I know lots of women who just adore golf. I guess you could do both, if you really liked it too.
You could wreck yourself on the golf course in the morning and get the all the knots massaged out of you in the afternoon.
That’s the five-star Intercontinental Fiji Golf and Spa.
Looks like a fabulous hotel, by the way.
Looks like it. I mean, you’ve got huge tropical gardens and white sands and swaying palm trees. It’s everything that you love about Fiji. Fiji is coming along hugely. I’ve just done a travel piece, for Traveller about Fiji and how there’s so many more hotels and resorts and attractions now than there were a few years ago. It’s really becoming incredibly popular, because we all went to Europe this year or last year, because we were so eager to get out and now we’re facing a bit of a cost of living crisis. So we’re going to Fiji, or we’re going to places a bit closer at hand.
It’s only four hours away, isn’t it?
It is. I’d just like to dedicate this podcast to my lovely mum, Edna Williams, who died on Sunday. We are asking for donations to MedEarth, a fantastic charity and you put in on Flat Chat, about MedEarth too.
You don’t have the crippling air flights to get there. So, Golf Resort in Fiji; why are we not going there, exactly? It is my birthday, afterall. I just wonder if they have different bars. You come back from your 18-holes of golf, and you’re distraught and threatening to throw your clubs in the ocean and next to you is your partner, who is all calm and serene and pampered… They should keep them away from each other for at least 12-hours. Edna used to listen to the podcasts, because she could hear your voice. I don’t think she was as keen on mine. Anyway, this is a lovely dedication to a lovely woman, and we’re going to miss her.
We certainly are.
Alright folks, that’s us for another week. Take care and we’ll talk to you again next week.
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, 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.