Are your levies too high … or too low?

Nobody likes paying strata levies or fees, as they are called in Victoria.  They feel like a tax on apartment living even though they are really just your share of what it costs to run all the bits of a building that surround your unit.

Even so low levies are often a selling point for apartments – especially new, off the plan units – but they can be a honey trap for the unwary and a money sink if things go badly wrong.

The whole question was raised in the Domain office this week when a penthouse apartment in the St Margaret’s scheme near Taylor Square in Sydney was sold for $4.025 million dollars despite attracting levies of $9,145.84 per quarter – a not-to-be-sniffed-at $36,583.36 per year.  Ouch!

However, if anything, those fees – at 0.9% of the value of the property – are on the modest side for an apartment that has ducted air-conditioning, a heated pool, a gym, 24-hour concierge and hi-tech security.

Even more heart-stopping are the $60,000 a year fees for the full-floor penthouse on level 82 of the Eureka Tower in Melbourne.  In fact, at 0.3% of the value, they are relatively low, considering the 676-square-metre apartment with 360-degree views over the city and Port Phillip will be the most expensive apartment in the city at $20 million.

The trouble with getting an accurate idea of what is a fair level for fees and levies is that you are often comparing ducks and apples. So many different elements can all have a significant effect on your fees making it very hard to gauge whether they are fair or otherwise.

Facilities like ducted air-con, a swimming pool, gym, spa, sauna, and in-house cinema rooms (like the Lumiere’s in Sydney) all come at a cost, as do services like gardeners, cleaners, a concierge (either 24-hour or office hours), security and a building manager.

The very basics of a building such as the number of lifts, the height of the building, secure parking, internal lighting and the provision of water are all costs.

And then there is the way the building is run.  If it has a particularly litigious or incompetent managing committee, is locked into non-competitive service contracts or is paying off bills from previous mistakes, levies will be high.  If the building is older, it will cost more to maintain.

And it’s not just negatives that inflate fees. If the owners corporation is doing its job properly by maintaining a healthy sinking fund to look after future repairs and maintenance, that adds to the fees too. There is a compelling argument that units in well-maintained buildings with relatively high levies hold both their rental and resale values better than flats in run-down buildings with low levies.

Now, perm any or all of those elements, and you can end up with a huge disparity between the levies for apartments of similar value, especially where one is in a well-run building with fairly modest facilities and the other is in a dysfunctional block with all the high-end resort bells and whistles.

That’s why there is no hard and fast guide to fair levies and fees.  However, over the years the Flat Chat column and website have evolved a rule of thumb that annual levies should be 0.8%-1.2% of property value for apartments with facilities, and 0.3%-0.7% for townhouses and apartments with few or no facilities.

A good example of the latter is the Advanx scheme in Sydney’s Rushcutters Bay whose developers make a virtue of the fact that, while it is a mid to upmarket development, it has no concierge, swimming pool or gym.  As a result, a two-bedroom unit that sold there recently for $1.4 million only had levies of $4900 per year – about 0.35% of the property’s value.

The rule of thumb figures cover a multitude of combinations and a broad spectrum of fees but anything above or below should be looked at fairly closely to see if owners are paying too much or too little.

How can you possibly be paying too little? Quite simply, when new apartments go on sale – often off-the-plan – some developers pitch the levies as low as possible, often while spruiking the fabulous facilities the building offers.

The problem arises after the first year of owners taking over the building when they discover they don’t have enough money in the kitty to pay all their bills.  By this time the developers have gone off to create something shiny and new somewhere else and the levies have to go up.  For people on fixed incomes, this can be devastating, often leading to penny pinching and corner cutting that ultimately damages the building.

To be fair, many developers value their reputations enough not to play fast and loose with the facts and figures in the first place, but even so the NSW government is planning to make developers more accountable for their levies estimates in the long-overdue strata law reforms.

The other distortion, and one you don’t see so often these days, is when a developer (usually a small private operator) keeps the levies on their biggest apartments or commercial areas unrealisitically low so as to attract more buyers.

If you “luck in” to one such unit, be aware that your neighbours might eventually wake up to how they have been duped and take you to your state’s Civil Administration Tribunal to have the fees reset to a more realistic level.

By the way, in Queensland, levies and fees are split between two elements based on the share of the insurance value of the block and the likely usage of facilities.

The nuts and bolts of this are constantly under review (presumably because it doesn’t work) but anything is possible in a state where the law allows the fundamentally corrupt practice of developers selling 25-year management contracts  over which owners – who have to pay for them – have no say in either the terms or conditions.

Finally, if you are wondering how your levies or fees are set, there is a profound but not entirely rigid link between the initial value of your unit and its unit entitlements – the figure used to calculate your share of the cost of running the building.

This is not a set relationship because the value of your unit can change disproportionately if, for instance, you renovate at some point.

But suffice it to say that if, as one Flat Chat reader complained, they were paying more in fees in the bottom-floor, south-facing flat, than their neighbour in the north-facing penthouse, something is seriously awry. More on this HERE on the Forum