Here are the top ten risks buyers face when purchasing a strata property in Australia, along with tips to mitigate each risk before buying:
1. Undisclosed Special Levies or Future Capital Works
Risk: You may be hit with expensive special levies after purchase for major repairs or upgrades.
Mitigation Tips:
- Ask for a review the strata plan’s capital works fund forecast (10-year plan).
- Read the last 2–3 years of annual general meeting (AGM) minutes and strata committee minutes
- Ask the selling agent or owners corporation directly about upcoming works or levies.
2. Poor Financial Management
Risk: The strata scheme may have insufficient funds or be poorly managed, increasing the risk of future levies or deteriorating conditions.
Mitigation Tips:
- Obtain a strata report and examine the financial statements, including the administrative and sinking fund balances.
- Avoid schemes that have high arrears or debts.
3. Structural or Building Defects
Risk: Major defects (e.g. cladding, waterproofing, cracking) can cost millions to fix.
Mitigation Tips:
- Review the building inspection reports or any engineer reports mentioned in minutes.
- Be wary of newer buildings (particularly less than 10 years old) that may still be under builder’s warranty but face known construction issues.
- Research the developer and builder's reputation.
4. High Strata Fees
Risk: Unexpectedly high ongoing fees can make the property less affordable.
Mitigation Tips:
- Compare quarterly levy amounts with similar buildings.
- Understand what is included (e.g. concierge, pool, lifts) - remember; high amenities mean higher levies.
5. Disputes Within the Owners Corporation
Risk: A dysfunctional or combative owners corporation can lead to poor decision-making or delays in essential work.
Mitigation Tips:
- Read committee and AGM minutes for signs of infighting or unresolved issues.
- Talk to current residents or the building manager if possible.
6. Restrictive By-Laws
Risk: Rules may limit things like pets, short-term letting, renovations, or noise.
Mitigation Tips:
- Request a copy of the strata by-laws before exchange.
- Make sure they suit your intended use of the property.
7. Insurance Shortfalls
Risk: Inadequate building insurance can leave owners out-of-pocket in case of disaster.
Mitigation Tips:
- Check that building insurance is current and for an appropriate replacement value.
- Review if owners corporation has taken out strata insurance compliant with state laws.
8. Poor Building Maintenance
Risk: Deferred maintenance can lead to sudden, large repair costs and declining property value.
Mitigation Tips:
- Inspect common areas like lifts, roofs, lobbies, and carparks.
- Review past maintenance records and upcoming schedules in strata records.
9. Hidden Defects in Common Property
Risk: Problems with shared infrastructure (plumbing, wiring, etc.) may not be obvious in a private inspection.
Mitigation Tips:
- Commission a strata records inspection from a specialist.
- Ask your solicitor to review records for mention of persistent maintenance issues.
10. Poor Developer or Builder History
Risk: Some buildings are plagued by issues due to developers with poor track records.
Mitigation Tips:
- Research the developer, builder, and strata manager online and via NSW Fair Trading or other state regulators.
- Be cautious with off-the-plan purchases — ask if there have been defect rectification orders.