New guide launched to protect Melbourne buyers from dodgy builds

A new guide has been launched promising Melbourne apartment buyers peace of mind, after a survey of more than 1,000-apartment owners in Victoria showed a majority were living in buildings with defects.

Research conducted by Australian Apartment Advocacy earlier this year showed 54 per cent of 1,044 Victorian apartment owners surveyed said they were living in buildings that were poorly constructed.

Australian Apartment Advocacy chief executive Sam Reece said 77 per cent of those respondents said they wished they had access to more education to help them identify defects before signing a contract to purchase.

In response to that finding, Ms Reece launched AAA’s Apartment Buyer and Owner Education Kit to the Victorian market, with the guide designed to help buyers avoid the costs associated with building defects.

Ms Reece said part of the problem she aimed to address was the fact that many defects were difficult or impossible to detect, while the consequences of building defects can often take years to be evidenced, which can have an impact on professional indemnity insurance claims.

The guide was developed in collaboration with the Victorian Building Authority, Domestic Building Dispute Resolution Victoria and Consumer Affairs Victoria, as well as a working committee of accredited builders, surveyors, structural engineers, insurers and lawyers.

A similar guide was launched in Western Australia last year, and has been downloaded more than 5,000 times to date.

Ms Reece said the kits aimed to provide buyers with a deep understanding of the warning signs and red flags present in defective buildings.

“It recommends that buyers ask the developer for documents such as the water membrane manufacturer warranty, acoustic report and structural engineers report – which can then verify the critical factors to the trustworthiness of a building have been addressed,” Ms Reece said. 

“It goes past the superficial aspects of the counter top, appliances and soft closing drawers and drills down into the construction standards.   

“It also directs buyers to check out the builder and if they have phoenix companies before as well as check to see if they have had any cases in the court system in regards to defects/building issues.   

“These are not matters that the average buyer would be aware of and hence even know to ask.”

Ms Reece said the issue was particularly pertinent for apartment investors, with dwellings in buildings known to have defects consistently being valued at lower than the original purchase price, while also being more difficult to rent out.

“I spoke to a gentleman the other day in Victoria who had combustible cladding on the building,” Ms Reece told Australian Property Investor Magazine. 

“The valuer general had addressed the value of the building accordingly (for rates purposes) and what had previously been valued at $1.3 million was now $1 million (in a 12 month period).  

“But it is not just the value of the apartment, the defects have a compounding effect.   

“For example, the Miami apartment that pancaked, when the defects were first reported two years ago the repair bill was $9 million.   

“Two years later the cost of repairs was $15 million.  So not only does the cost of your property diminish but the cost of repairs accelerates over time and owners are left with what we call ‘defect debt’.”

Ms Reece said she would now turn her attention to tailoring guides for the New South Wales and Queensland markets, with NSW in particular a concern.

“Defects aren’t maintenance or repair issues; they are faults created during the build,” she said.

“No one can imagine what it is like, unless you have lived the horror of the bad builder experience and the legacy they leave behind.

“Our research shows if a buyer has defects in an apartment, their chance of buying another apartment drops 30 per cent and with only 14 per cent of people saying they’d buy off the plan in the first place, consumer confidence is at crisis levels.” 

“Unlike buying a home, when there is a defect in an apartment it can have huge financial ramifications for the entire block and it involves a number of parties including the certifier, developer, builder, strata manager, body corporate and the owners themselves to work proactively.

“These buyers must have confidence that their apartment will last the legacy and it will retain its value and be a safe home.”