You may have heard ‘strata’ pop up quite often, especially if you’re house-hunting residential apartments and townhouses.
First introduced in NSW in 1961, strata title property ownership quickly spread to other states and territories.
Recent studies show 9% of Australians live in apartments. 48% of apartments across the country are rented out, 12% are owned outright, and 14% are owned with a mortgage.
This article explains what strata is and some key things to remember if you’re considering buying a strata-titled property.
What Does Strata Mean?
Typically, when buying a house, you must purchase the land title or the whole block of land.
However, strata refer to a property ownership structure where you have individual ownership of certain parts of a property and shared ownership of common property. The strata title is a legal document of your ownership of an apartment, building, or office.
What is a Strata Property?
A strata title property refers to property owned with a strata title. It consists of a building or several buildings owned by a strata owners corporation.
When you purchase a property that’s part of a strata title, you become the owner of the portion of your individual property (also called lots owner). In addition, you also have shared ownership of the common property areas, such as the foyer, garden, lifts, swimming pools and fences. The common property areas are the joint responsibility of all the property owners of that building.
You can purchase an individual strata lot. The aggregate of these strata lots is known as a strata scheme.
Townhouses and residential apartments are the most common types of strata title properties. However, you’ll also have strata housing options in serviced apartments, commercial property, caravan parks, retirement villages and retail. Moreover, they should not be confused with community titles.
Depending on which state or territory you live in and the scheme type, a strata community is managed by a legal entity called an owners corporation or body corporate. Though the terminology differs, their general purpose and objectives are the same.
In addition to the scheme by-laws, each state has comprehensive strata legislation covering issues, for example, lifts, smoke alarms, fire safety, pest inspections and asbestos management.
What is a Strata Fee?
In strata title schemes, the owners’ corporation typically raises funds from the lot owners through strata fees.
The fees are used towards the administration and maintenance of common property areas of the strata scheme, paying for insurance premiums, the building manager, unexpected repairs and other such expenses.
The amount and frequency of the contributions to manage the owners’ corporation are agreed upon by all property owners at the annual general meeting of the strata scheme. Generally, lot owners have to pay levies every quarter.
The owners’ corporation generally appoints a strata manager for collecting fees and the strata management.
In most cases, the strata manager’s role includes settling bills, organising strata gatherings, and managing complex issues, including dispute settlements. If there is no property manager, then the strata manager can oversee the maintenance of the common property.
Special Levies and Sinking Fund
Sometimes when funds are insufficient or unavailable, the owners’ corporations can impose temporary or special levies. This helps to take care of the significant unforeseen expenses on common property assets, such as replacing a lift.
A sinking fund can be set up by the body corporate or owners’ corporation. Money is primarily parked in this capital works fund for use in future, such as repainting the building or installing new guttering.
The owners’ corporation can plan how the capital works fund will be raised – whether through the sinking fund route, special strata levies or other sources. In some cases, the scheme may even borrow money from a strata finance or loan.
When purchasing a strata title property, you should include the fees in your ongoing costs to know what you’ll need to budget for.
How Much Does Strata Cost?
Based on industry trends, lot owners pay strata fees anywhere from $550 - $2,500 per quarter. In NSW, for instance, the fees of strata schemes average between 0.8% - 1.2% of the property value for properties with good facilities and between 0.3% and 0.7%, where facilities are fewer.
The fees often vary widely according to the size, age and facilities of the strata scheme you’re buying. For instance, an apartment in a modern complex with a lift, swimming pool and gym amenities will likely have higher strata levies than an older building with no lifts or modern facilities.
Likewise, common property features such as lighting, security, theatre spaces, rooftop gardens and availability of cleaning, concierge and other services come at extra costs. You have to pay more for their upkeep and maintenance.
Notably, townhouse strata scheme fees are usually lower than apartments.
Tax Benefits for Investors in Strata Schemes
Strata title property fees are tax-deductible for investors. Therefore, you should maintain proper records of all the expenses incurred on your property. This will help determine what you can claim for tax purposes.
As an investor, consider your strata property fees as an expense that helps you produce income. This is because these expenses maintain your assets in good condition while enabling income generation.
Home Ownership vs Strata Ownership
You may wonder what the key differences are between owning a home outright or under strata title.
Here’s a quick rundown of some critical aspects where strata housing can benefit home buyers.
In a strata property, your ownership includes your particular unit and shared ownership of the common property with multiple owners through a corporate body. Since you do not own the exterior spaces, such as the external walls, floor or roof, the maintenance of these areas is the responsibility of the owner’s corporation.
When purchasing a stand-alone house, you become the sole owner of your property, including all the interior and exterior spaces. Also known as Torrens Title property, it is one of the most common ownership models for freestanding houses and some townhouses. Though it is considered the highest form of property title in Australia, it has its share f risks and responsibilities.
Access to the Property Market
Typically, strata lots are cheaper compared to buying your own house. This makes strata houses a more practical way for first home buyers. It enables access to the property market or facilitates buying in an area with higher rates.
Unlike a freestanding house, when you opt for a strata-titled property, you can go on a vacation without worrying about the maintenance of the common areas. Instead, the strata manager is responsible for handling these issues.
When you purchase a strata scheme, being a lot owner, you become a part of the owners’ corporation (or body corporate). The corporate body holds the legal responsibility for managing and maintaining the common property of the strata-titled property. Therefore, you usually are only responsible for maintaining and repairing your own lot.
On the other hand, when you own a house, as the owner, you’re exclusively responsible for the maintenance of your entire property, including the payment of council rates and water rates.
The owners’ corporation is primarily responsible for the common property of the scheme’s buildings. Moreover, the costs are divided between the owners on a unit entitlement basis. Therefore, larger units with a more extensive unit entitlement must pay higher strata rates. So, if you own a smaller unit, your strata levy will likely be lower.
With home ownership, you own the property outright. This means the costs of keeping it properly maintained will be higher as you will be entirely responsible for the upkeep of your property, both internally and externally.
Strata title properties typically have a pool, gym, and secure parking. You can access these facilities without bearing the entire cost of buying and overseeing the maintenance of these facilities. In addition, the strata title schemes, especially apartment buildings or gated complexes, offer greater security than a stand-alone property.
On the other hand, with your non-strata home, you have to foot the entire bill for any additions, improvements or security features you want to install.
Opportunity to Help Your Community
As a lot owner, you can attend and participate in meetings and contest positions that interest you, for example, chairperson and secretary.
In addition, strata committee members play an essential role in decision-making for the community. This can be highly gratifying, as you can make a real difference in where you live. It is also an excellent way to get to know your neighbours.
While strata schemes have distinct advantages, there are some downsides to be aware of.
Council Rates and Fees
The strata levies or owners’ corporation fees you have to pay may be expensive, especially if your unit entitlement is higher. In addition, if your property is in a complex with facilities like a gym, rooftop garden and specialist services such as strata managers, this increases expenses.
Also, the fees could increase over time or as decided by the strata committee. Moreover, since council rates are levied for each unit, you must pay these separately from any strata levies.
In contrast, you’ll have to pay for council and water rates if you own a freehold property. However, the maintenance and repairs must only be paid as and when required.
Restrictions of Strata
Depending on the scheme’s by-laws, rules and regulations, every lot owner has to follow the by-laws and various restrictions keeping in mind the comforts of other residents. Examples include parking restrictions, pet policies, storage of bulky items like boats, maintaining noise limits, carrying out renovation works, council zoning and many others.
The only limitation stand-alone property owners have on using their lot is council zoning and approval. This gives them more freedom to use the property as per their choice.
Lengthy Decision-Making Process
If you are a strata committee member, you must set out time to attend committee meetings to decide on important issues.
Likewise, decision-making can often be lengthy, and there’s no guarantee that your always your ideas or suggestions could be accepted by other members. In such scenarios, you’ll have to go with the majority.
Also, it’s essential that the strata scheme complies with stringent requirements. This often makes it necessary to have a professional strata manager to ensure the smooth running of the scheme. Unfortunately, paying for the services of strata managers can lead to a steep increase in your quarterly fees.
With your own freestanding house, you can decide on your property and coordinate repairs as long as they have the council’s approval.
Value Linked to the Complex
With strata titles, your property value is linked to the value of the other apartments in the complex. This means even after implementing renovations, and it may not boost your property value significantly.
Moreover, good strata management helps in the proper upkeep of the property. If the strata management is not good, the property’s maintenance gets affected, impacting the property value.
However, with stand-alone properties, you are in greater control of their value as the state of the neighbouring properties does not impact them.
The lot owners will need to share facilities such as lifts, gardens and parking spaces with other residents in your building. This could lead to disagreements or conflict with your neighbours.
What to Consider Before Buying a Property with a Strata Title?
If you’re looking to purchase a strata title property, you must understand the implications of this type of ownership. Here are some key notes to keep in mind:
You will be responsible for paying strata fees levied by the owners’ corporation. Assess your financial situation before taking on this additional cost.
Condition of the Property
The condition of common areas, such as lifts and parks, can significantly impact your enjoyment of the property. Therefore, inspect the property thoroughly and research the state of common areas before making an offer.
Moreover, check the property’s condition and whether it needs any major repairs. If so, check if the owners’ corporation has set funds aside to cover these costs.
Rules and Restrictions
Rules and restrictions may impact how you can use and enjoy your property. For example, some strata schemes do not allow pets or may not have guest parking. So, be sure to check the rules and by-laws before making an offer on a property.
Financial Position of the Owner’s Corporation
It’s essential to check the financial statements of the owners’ corporation. This information will help you understand how well the owners’ corporation can manage everyday expenses and whether there are any outstanding levies or fees you would be responsible for paying.
A strata plan represents the scheme’s lots and the common property. A strata plan should include at least one building facility, including the boundaries of individual strata lots.
Before making an offer on a property, check that the strata plan is registered with the relevant offices in your state or territory.
Use Joust to Help Your Property Ownership Journey
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Note: The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions