Episode 113 | What’s behind the wall?: 85% of developments have defects | Dr. Nicole Johnston, Deakin University

Our hosts chat with Dr. Nicole Johnston and her report on building defects in the residential sector.
In this insightful episode Veronica Morgan and Chris Bates chat with Dr. Nicole Johnston, socio-legal researcher and senior lecturer at Deakin University. Nicole has spearheaded the development industry, shining the spotlight on defective developments in her university published report “An Examination of Building Defects in Residential Multi-owned Properties”. The report highlights the severity of the development industry, analysing 3227 defects across 212 buildings in NSW, Victoria and Queensland.

In today’s episode our hosts discuss the problems plaguing the development industry and how they can redeem themselves in the coming years when truth surrounding their dodgy dealings spills.

Here’s what we covered:

• The risks of buying brand new.

• Why NSW is the riskiest state to buy a new apartment.

• Why is there very little research on new buildings?

• What happens to tenants with defects and the red tape involved?

• Water related defects are the most costly and common defect.

• Why does home and contents insurance not protect you from defects?

• Why you should always invest more into a specialised property lawyer

• How do we make quality builds and also solve the housing affordability crisis

• Will developers make the first stand and take ownership for defects?

• Rectification costs never capitalised when you go to sell.

• Cheap apartment = Costly endeavour.

MENTIONED EPISODES:
Episode 87 | Kerry Hunt
Episode 91 | Rod Fehring
Episode 106 |  Dodgy Developers

GUEST LINKS:
Deakin University: Nicole Johnston
Deakin University: Home Research Hub
Home Buyer Academy

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au 

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Buy the book - AUCTION READY How to buy property at auction even though you’re scared s#!tless:
www.getauctionready.com.au
Use the coupon ELEPHANT for your 30% listener discount.

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded on 26 February, 2020.

Veronica Morgan: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan real estate agent buyer's agent cohost of Foxtel's location, location, location Australia and author of a new book called auction ready, how to buy property at auction. Even though you're scared shitless.

Chris Bates: And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free food or forecast report. Which experts can you trust to get it right, the elephant in the room.com.au.

Chris Bates: Please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo, the weight coming out

Chris Bates: Before we get started, everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: Apartment building defects have largely disappeared from the front pages of our newspapers and while a lot has been happening behind the scenes in reality so far not a great deal has changed in terms of the end user, we're worried that since the market has taken off again more buyers are active. Many of them first home buyers, FOMO has returned and they're forgetting all about the risks of buying brand new and off the plan in their haste to get onto the property letter. So we want to keep the conversation alive. Our report examining building defects in residential multi owned properties was released mid last year in which 3,227 defects across 212 buildings in new South Wales, Victoria and Queensland were analyzed. The results were alarming and I quote 85% of all the buildings analyzed, had at least one defect across multiple locations. And what does that mean? We're going to find out today based on this report, we could draw the conclusion that new South Wales is the riskiest state in which to buy a new apartment are whopping 97% of buildings included in the report had at least one defect in more than one place.

Veronica Morgan: Victoria looks positively glowing by comparison at 74% and Queensland fall is at 71% and while 212 buildings might be a significant sample size, that number is a drop in the bucket in terms of the amount of people impacted by poorly constructed buildings. In this episode we pick the brains of the author of this report, Dr. Nicole Johnson. Nicole is a senior lecturer in the department of finance in Deakin business school and associate legal researcher focusing on multiple aspects of multi owned properties at strata title condominium and apartments including governance, conflicts of interests and legal relationships and what a chat we're going to have today. Thank you so much for joining us, Nicole. Pleasure.

Nicole Johnston: Thank you so much for having me.

Chris Bates: Thank you, Nicole. I've been looking forward to this because juicy or distance not being in Sydney is we've had to do this at five o'clock during the week when you're here. So thank you for coming in. I think in terms of your research what kind of got you to start this kind of journey and what was the catalyst to, to kick it off?

Nicole Johnston: Yeah, so we've been talking about building defects in the sort of the strata sector, if you will, for many years. I've been researching in this area for nearly 12 years now and it's been a topic of discussion at every conference or forum that I have attended over that period of time. And what started to become very apparent to me is that the conversation we kept on with this conversation, but there was very little research that we could look at to find out really what the prevalence of building defects were in this particular property type. You know, what type of defects. So to be able to look at what type of defects are actually impacting the end user the most and really looking at what is the role of the regulatory environment and also the role of government in dealing with these issues. So I started out looking, you know, further afield globally really to see what research had been undertaken so that we can sort of learn some lessons I suppose from other jurisdictions because we know that building defects is not unique to Australia, although it's becoming very evident from what we've seen coming out in this report in the media.

Veronica Morgan: But we know other, other countries as well are really badly impacted. We know about the leaky building crisis in New Zealand. Singapore's got issues. It is everywhere in the world. So I was looking further afield to see, well what insights that we could gain. And, and found very little to be quite Frank as far as research is concerned. And even domestically, looking at what other universities and what other academics are doing in the space. And again found when it comes to defects in this particular property, types of mainly apartment buildings that there was really little to go on. And so I was really concerned that we have this huge you know, property environment here in Australia with lots of apartments. It's the fastest growing property type in this country and we'll continue to do so. And I was very concerned about what was impacting the end user. So that was really the catalyst and for the research.

Chris Bates: And why do you think there was, I think I might know the answer, but why do you think there's really no research put into this problem? And why do you think that, you know, no one really wants to look at it, I guess.

Nicole Johnston: Yeah. So doing research in this area is very, very difficult and very complex. So finding the data, good quality data to know what's going on in these buildings, to analyze that data and to actually make sense of it is really, really difficult. And for me, I'm not a construction expert. That wasn't my area of expertise when I started this research project. I had to be well and truly schooled in the built environment and what the different elements and the complexities of this property type and which I did. I wanted to undertake that journey. I'm a, I'm a, I'm a learner at heart. You know, I wanted to learn these things. And so it was really important for me to then you know, look to see well like, Hey, well why have, why hasn't this been undertaken before? And I became very evident to me very early on that getting good data on these buildings and what the defects were about is very difficult to obtain.

Nicole Johnston: And so I was actually quite fortunate that you know, I've got a good network of people. I w you know, I went around and knocked on a lot of doors and asked people for this data that I thought was really, you know, we're at a time that we needed, we need the information to really get a better handle on what those sorts of defects really were that were impacting upon this built form. So that's, that's where it sort of started, I think. And, you know, two years down the track from when I started, I can understand why people actually haven't gone through the journey.

Veronica Morgan: It's, I've read the report and I couldn't wait. It's sad, isn't it? And it was very interesting that whole beginning, beginning really where you go through the methodology and how all the data is, is cause you've got quantitative and qualitative. So a lot of interviews and a lot to talk about that sort of next. But the quantitative stuff. So this is the data driven stuff, right? You've really then gone to building inspectors effectively and gone and sifted through all their reports. Right? And then of course, if they don't have consistent methodologies or consistent formats, you've had to go on and find some level of, you know, what's the word to even use. I mean, you know, some commonality. Yeah, yeah. Common ground.

Nicole Johnston: And this was, you know, and I think this is a really important point in the way that I've drafted the report. And I hope that, you know, I, I've got it out there. It's accessible for everyone and I want people to feel free to be able to get a copy of it in the show notes and not feel nervous about reading it because I hope that I've drafted it in a way that it is still academic. So there's still some real, you know, very clear ways that I've gone through, gone through the research. But I hope that I've tailored it and I've drafted in a way that it is actually a nice read for people that are interested in the area to read. And I wanted, and I wanted it to be clear about, you know, what journey the research took to get to that end point. Because I think too often we read research reports either from marketing people or even from academia where you'd actually don't know where the information is coming from. And I think it's important for anyone reading this to really understand it. So, yeah. So thank you for that. I'm glad. You know, that was the whole point that the difficulty was in getting these reports is there's no standard template. And so, and there's lots of information missing and it's certainly a limitation in the study because you get all this and these reports that written in a narrative form.

Nicole Johnston: So you've got builders, architects, engineers, perhaps it's very difficult to know who the inspectors actually are for the companies going on site. And again, you don't know whether they are just doing observation, so they're just going through the building floor by floor looking for those defects to report or whether they're doing any invasive type of testing to see what's hidden behind the walls. Because that is one of the issues. What's behind the walls we can't see and until there's some sort of destructive testing or the whole fabric of the building starts to build down, you sometimes don't know what the sort of lightened defects are that are sitting behind there until you have an intervening event like water penetration, water coming through your building or a fire for example, when those sorts of things are exposed. So getting back to the reporting then. So we don't know who did these, we know that we had criteria around the companies that we sought the information from.

Nicole Johnston: Yup. But we don't know exactly the methodology they employed undertaking this particular you know, process going through the buildings. So these reports come about. Just to give you a bit more of a background in relation to how this works is either in an owner's corporation or a body corporate, an issue will arise and often it's after perhaps the first big rain event where water is starting to come into the building so that they know that there's a water ingress issue in the building. And so they'll go to the owners corporation or the body corporate. And the next step usually if you've got a manager in place, will be to get an investigative report to, to commission one of these building inspectors to come onsite and give the body corporate or the owners corporation a report about their defects. Alternatively, what we're seeing more and more, which is really great to see, is really good management companies are as a matter of course, in the first few years of the life of a scheme, giving advice to the owners corporation or body corporate to actually undertake that inspection.

Nicole Johnston: And so that's the, that's the information that I got. But of course as I said, it was in narrative form. So then you have to extract that information from these reports and sorted in a way that you can analyze from a quantitative perspective and to make sense and to make sense of what's going on. So that was a very labor intensive process. As you can imagine.

Veronica Morgan: I'm interested also in the definition of defect because you know, I think there was quite mentioned many times is it's basically one thing happening in more than once per spot. So it could be very, very minor. It could be catastrophic really. So yeah. Can you share with us?

Nicole Johnston: Yeah. So I think this is again, one of the real, I call it a research hurdle because until you know what you're identifying or what you know, what the definition is of the breakdown in that particular element, it's very difficult to do the research.

Nicole Johnston: And so construction experts think about defects very differently to the law. So each state has legislation and in that legislation it provides a definition of what a defect is. In some States they between major and minor defects or structural and non-structural defects, but every state's very different thanks to the federal system that we have. It makes all this stuff around property much more complex. Yeah. And so when the lawyers are actually litigating this and they're going through the court system or the tribunal system, then they are looking at the legal definition of the defect. So when they are looking at these reports, they're making a determination in relation to, well, what does the law say is a defect and then what you can pursue as far as any litigation is concerned. Yeah. From a construction point of view, however, they can give it very differently.

Nicole Johnston: And in the report, I've got a very broad definition. It's sort of, you know, looking at any sort of failing in a system or element or statutory or use a function within a building. So it's much more broader than what a lawyer would be. And then of course you've got the end user in all of this. The person who lives in the apartment and their definition or have they see a defect in their building again is very different. And we can't dismiss that because a broken door handle or a chip tile for someone buying into a new new building, that's important. And so for other people that are dealing with this at a sort of a, you know, bigger level, they're dismissing those sorts of defects. But I think it's important to still say, well we've got all these mainly minor defects that are probably easier to resolve than some of these more complex structural or you know, waterproofing, fire related defects that most of us are talking about as far as the needs to reform and so forth.

Nicole Johnston: So that's, you know, that's part of this all this working out. Well, what are we talking about when we're talking about a defect? And also, how does that differentiate between a lack of maintenance or repair work by the owner's corporation or the body corporate or the lot owner,

Veronica Morgan: Although your, your report or your research was limited to properties that have been inspected within the statutory period though, right? So it's a fairly short period of time. Like what would, what sort of period of time would you think that was?

Nicole Johnston: Yeah, so again, every state's different and this is again, the complexity of it. So in a state like Victoria, you've got a 10 year period. In new South Wales, there's changing and depends if there's a two year in a six year and then in a state like Queens, then there's six years and seven months. Um again, depending on the type of defects. So there's all these little complexities around when you can, when that limitation period actually expires. And so, yeah, so my research was very focused on new builds. That front end, what's going on when the developer and builder responsible for rectifying those sorts of defects as opposed to what happens down the track. But of course the conversation with developers and builders often is around, especially in the later periods, having those sort of five, six, seven year Mark depending on the state you're in is more around, well it hasn't been maintained and repaired properly. And so then that muddies the waters in relation to this whole debate around building defects.

Chris Bates: So in terms of your, in the industry and you've spoken to a lot of people in your reports, part of that industry, how big do you think the problem really is? Do you think that your sample size is a good reflection on the industry? And have, I guess the industry really just kind of come back and said, well, you've only done 200 properties. You know, there's 20,000 buildings, you know, or they kinda try to cut you down due to at only being 200 buildings.

Nicole Johnston: No, not at all. And I'm very Frank in the report and any time I'm speaking that this is a pilot project, this was a start. And so you know, by no means I'm saying that these results should be generalizable. They shouldn't be. It is a sense this is the sample. It's a sample of 212 buildings. But I think, I think our starting point should always be that I think all buildings have defects. And you know, that's, that's pretty much a given. And I, and I think, you know, that's just part of the building process that you're going to have a few defects in the buildings. Everyone has to accept that that's not really the issue here. The issue is the, these more systemic complex defects that are going to impact upon perhaps the safety and the lives of the people that reside within, that we need to turn our attention to.

Veronica Morgan: And also from what I picked up was how the defects are dealt with. You know, because I think that's, that came out loud and clear that it's the process around, you know, an individual owner or the owner's corporation that has to go through in order to get rectification and some of the games that can be played. That was some of what you shine a lot on there was rather alarming I have to say. And I think

Nicole Johnston: That's the real, that's the, you know, the hard part, and that's why I did this research is because when I look, any research that I do in this area is very much focused on the end user. I'm interested in what impacts the people that reside in these buildings. All my research, regardless of the building DC work is concentrated around that. So I'm very, very concerned about what happens there. So it was really important for me to have the conversation with owners and other people that are experiencing this particular problem to see, well, what is actually happening? You know, what, how long are you waiting for these to be fixed? What is the process that you're going through? And what are the sort of issues that you have to deal with on a day to day basis before this actually happens? And to highlight a few, you know, it seems to be a very common practice that the builder will come back in that sort of very early period to fix, you know, these sort of minor defects.

Nicole Johnston: They'll fix the fix the chip tall, they'll fix the paint work or fix the door, do you have, it's a bit broken, that sort of thing. They'll fix those sort of small or, or more minor defects fairly quickly. When it becomes very apparent that there are more complex defects commonly seen seems to happen is then the time period is being pushed out. So, you know, the conversations are, you know, we're getting there, we want another report done, you know, and then inevitably what we're seeing and one of the problems that has been outlined in the report and the researchers, this issue where the builder or the developer will have a solo purpose or a sole purpose company that's created for that particular site. And then of course, once all the units are sold and all the profits are then trained back to wherever you know, there's a, that liquidation process happens and then you don't have anyone to Sue.

Nicole Johnston: And so it's all about timing for the end user and that owner's corporation or body corporate to make sure that they're on the front foot and get legal advice early on rather than later to protect their rights, to keep an eye on what's going on here so that they don't end up in real protracted litigation for years where then, you know, more and more people, more trades are being involved in the litigation process. That actually then extends the time for the end users. And then, you know, so many people said to me that are on committees that are working really hard, that are doing amazing jobs, dealing with these really complex defects issues. It's just, it's hard work. They're volunteers. You know, they're doing it for the collective and those usually a very small group doing it for the collective, listening to the voices of all these other people trying to make the right decisions in a very, very complicated area. And you know, so many have said to me, we lose sleep. The stress levels are high. You know, I had number of, you know, lovely men that I spoke to that were in their mid sixties. They'd be businessman and they said, you know, sometimes Nicole, we just sit on the couch at the end of the day and just have to, you know, have a little cry about having to deal with this issue and they can't sell out. They're stuck doing it and just have to stand up. And that's, that's the crushing part of the story.

Chris Bates: Mm. Well I think a lot of the problem, you might have found that a lot of their apartments are actually owned by investors. They're not actually owned by the person living in the apartment. So the, the renters are just signing a one year lease. They come in, they do see defects or there's problems. They ended up, they just leave at the end of the lease if they can afford to or they unfortunately have to stay because they can't afford to rent to actually rent something else. And so a lot of the investors aren't really that, you know, they, they've got other things going on, right? They're not that involved with the building. They don't see it every day. So a lot of them are just going to be absent and they're just going to let someone else deal with every found. That's been a lot of [inaudible].

Nicole Johnston: Well, well that is right. So it, it go always, but in any type of issue to do with these sorts of buildings, that's always the scenario that plays out where you've got a small group of people that are becoming more active. You've got a lot of apathy in these sorts of environments because it is a really complex area. It's a complex area of law and you're asking people that just want to live in their apartment or have their investment to stand up and be part of quite a complex governance arrangement. And so, you know, I don't blame them for not wanting to be involved in it. Who would want to, that's someone has to stand up and you always get this small group of people that do stand up because they have to, it's a requirement that there's a committee that's formed and the committee has to do something.

Nicole Johnston: And so, you know, I do feel very, you know, very much for those investors often get involved. Of course when the big levy comes. Yeah. And because you know, they have to fix their defects and you know, it's a very expensive you know, journey down the defects route. And so oftentimes, you know, a very large Livy has to be, you know, put back on each of the owners. And that's when you start to get probably the investors coming to the fore. But in relation to the tenants, and this is a really important point because it's a story that's not told a lot in this whole area of building defects. And, and it's, it's very important to tell the story because so many times, and I've seen it play out time and time again. Well you'll have a tenant move into the lovely new apartment often with families.

Nicole Johnston: Yep. They're potentially of a particular socioeconomic group and you know, it costs a lot to get the bond together in these urban areas like Sydney and Melbourne, rents are very, very expensive. They've had to pay to move in there and if after that first, often it's about water. So after that big first rain event, water's coming through. And then they've down the end of the actual chain as far as responsibilities concerned because they will then talk to the property manager. The property manager goes to the owner, the owner has to go to the owners corporation, the owners corporation then goes to the building or developer. And that takes a long time if it ever gets rectified. And so the poor tenant is left in this apartment with water damage everywhere. Oftentimes issues around biotoxins I'm talking about mold that that can have huge health impacts on families.

Nicole Johnston: They're stuck there. They can't leave because they obviously can't afford to leave or they don't know their rights well enough to be able to do anything about it. And so we're seeing this play out more and more where you've got tenants that are living in these apartments that have mold in them and sometimes the mold is unsafe and you might see a little patch and use brand new, brand new. And so I'm very concerned particularly about people that are in those tenancy arrangements because they are the last in the line as far as having a voice to enable that to be rectified,

Chris Bates: Going to pass the buck. Right. Cause the real property manager's going to say, well I've told the vendor that the vendor is just going to say, well I've told owners corporation, yeah we've launched something with the builder and it's just no one's actually going to take ownership.

Nicole Johnston: And even if they know that that's the chain, cause sometimes owners go, well I don't know what to do. I don't think it's my responsibility. I don't know the water's coming from somewhere else in the building. Sometimes they're very unaware that they part of an owners corporation. And so it just delays everything. Finding out who's responsible or they'll do patchworking. So they'll come in, they'll get the exit mold, squirt, squirt. It's still a little rub. Dan, let's do a bit of patching. Doesn't help the situation at all. And then you know, and this, and this is what, this is what's getting, I think played out quite a bit.

Veronica Morgan: I was actually surprised water was less than 50% of defects to be quite Frank. But I know that there's the ongoing, there's the secondary problems that come from a, you know, a faulty membrane or leaks. Yes. But also, so that's sort of one thing I, you know, cause I know that waters that shun not nearly every balcony actually has to get very waterproofed in pretty much every development it did. Everyone you talked to, Oh yeah, the background's had been redone. But it's also about the, the actual strata manager, isn't it? I mean, because there's an issue there with how the manager is important, appointed in the first place and historically has been some muddiness around that. But also how equipped they are with the knowledge around what to do here. Because you know, managing a, an old 40 year old three-story RedBrick Walker versus a brand new complex with all these things suddenly manifest it. Two very different things, aren't they?

Nicole Johnston: Absolutely. And so first with the first part of the question about the water, so although in the report it does highlight that most defects are centered around the building cladding and fabric construction element within a building, which to the listeners is a bit complicated, but I'll try and break it down. So what we were seeing was that most defects were found in either the, say the plasterboard or the masonry or the lining of your apartment or the lining of the building. Okay, so you're building fabric and cladding. And so that's where the bill, the defect was found. Now those defects are often related to water. And so what they are, what I would call resulting defects. So it may be that the membrane has ruptured or there's a problem with the membrane. There's no flashing around the windows and the doors. It's coming from the roof perhaps, because oftentimes that's the, you know, the last part of the building. So it's a bit of a slap happiness up on up on the top. There are probably lots of defects and wind can push rain under rooves as I found out the other. And so water is really insidious.

Nicole Johnston: It moves through the building path of least resistance. And so it's looking always for places to go. And so that's why you're seeing so much more damage from water related ingress in the actual building fabric itself. So really at the end of the day we can, I think we can safely say that probably water-related defects is the number one issue. Yeah. And so and the one of the most costly things, because ripping up the tiles on a balcony, fixing up the membrane. If you've got a big balcony and you've got a balcony on every single lot in your building, it is a very expensive thing. And also of course bathrooms, we always know when we renovate bathrooms and kitchens, very expensive. So I know of a lot of buildings where the bathrooms being ripped up, all the tiles, everything has to be ripped out to fix the membrane underneath and put it all back. Very, very, very costly endeavor. If you've got defects relating to water.

Veronica Morgan: And when you're, you mentioned earlier about you've got to fund that defect rectification because then you bait usually quite often got a legal battle on your hands or you've at least got to put together a claim for the insurance if there is insurance, rarely, rarely, rarely. There isn't. Let's talk about that more, but I also, the idea, I think that quite a lot of people think when they're buying into strata that they are covered by insurance and we have talked about this many times, perception, but the very fact is that even if you are, you're probably going to have to fund it before you get your claim. That's right. And then the claims, potentially any percentage of what actually is expended anyway.

Nicole Johnston: So just having home and contents insurance is not going to help you in this situation. And so we don't have insurance that covers these big buildings that are over three stories. There is some mechanism for S for smaller buildings, but for these bigger buildings, there is no Avenue to go down. So the person you have to go after is the builder and developer in relation to these issues. And as I said, if they've gone, if there's no one to Sue, you are required under the law in every state to rectify and maintain your building. And so the owners thing goes back onto the owners corporation to undertake this. They have to do it and then they might have to try and find someone to Sue, but they have a statutory obligation. They are responsible for this. And so that sort of muddies the waters in.

Veronica Morgan: The statutory period. You said like in Victoria, it's 10 years in new South Wales or the two years or six years and he's changing and Queensland six season signals or something. He said what does that mean exactly?

Nicole Johnston: So that means basically that that is the liability period for the person that's responsible for the build. Right. And so you have that period of time in which you need to commence proceedings against that person to rectify. So we have it in all areas of law of money, a dispute in relation to a contract or it might be in relation to criminal matters. There's all these liability periods where people, you know, have these, you know, obligations for, you can't, people don't have obligations to fix things forever. No, there has to be a limitation in law. And so each state has created their own limitation periods in relation to this particular issue was a litigation deadline. Correct. And so if you haven't started it by that day, then you, you're at a time, you're at a time.

Veronica Morgan: So Victoria is the best state to buy off the plan.

Nicole Johnston: Potentially yet. And this is one of the things about, well what is the best time frame that we're talking about here? And so when does it start? Does it start and when they broke ground or does this staff when it's finished? That's a very good question. So maybe not quote me on this. I think it's, I, I think it may vary. I'm not quite sure. So maybe cut some buildings or take two years to bear. I think at some times when it could be about when the element comes in or when the constructions initially, I'm just not quite yet in relation to that. But I've had a lot of people would think that,

Chris Bates: You know, it's all the new buildings. I don't want off the plan so I won't buy one of those. But you know, this building's been around for five to 10 years. And there's nothing in the country is not. The Strada report seems fine if there is one and it's done well, but they look at that and then they still think they're okay and the building's five years old, a lot of these issues can up down

Veronica Morgan: The line, can't they? And then the statuary periods basically avoided anyway.

Nicole Johnston: Absolutely. So you do have to be very careful. So a main, whenever you're buying into the sorts of properties you need to spend the time doing the due diligence. You need to make sure that you are looking at the records because oftentimes in the records of the owners corporation, which any purchaser actually does have a right to inspect and should inspect, they why that they get their solicitor to do that on their behalf or they have an actual agent, his agency now, now in nearly every state that will go in to the owner's corporation and do a full inspection of these records. And if you're able to get your hands on the communication, you should be able to see, which is a bit questionable sometimes, but you should be able to see in, in the notes or in the reports whether there has been issues in relation to building defects.

Nicole Johnston: But in any event, if I was buying in there, I would be getting someone to go in and do a bit more of a building inspect inspection thing to do on a big building. Very, very hard to do in a very big building, very hard to do, be a building. And the problem is there are some things that are more apparent. So water, you know, I think by probably the six or seven you would have had number of rain events so you would have a bit of an understanding where the water's coming through there, what is, what is not. So what is more difficult to find is if you've got some problems in some of the passive fire systems within the building.

Veronica Morgan: This is actually something that I was a bit alarmed about when I read your report and I spoken to a few people. It's just, Oh no, you know, I don't think that that's such an issue. But yeah. Well I can tell her looking at face pot, listen, as you can't see, Nicole's do tell.

Nicole Johnston: Yeah. So I think this, this to me is probably the most concerning in a way. What do we see? So we see the water coming through and because it's, you know, if you're in your, if you're in your living room and water's coming through and you can see it coming through your walls, you know, immediate action is taken in relation to that regardless of how the liability or the litigation rolls out. You can see it, it needs to be fixed because it's impacting upon your daily livability within your apartment. Some of the fire safety systems you don't know about until there's a fire and it starts to break down and you're not safe, safe in your building.

Veronica Morgan: So all told we met, we tell him there's colors and seals.

Nicole Johnston: Basically the two big things that I'm most most concerned about is the collars that are around pot. So pops are going up all through the building. There's lots and lots of pipes and to ensure that if a fire starts, for example in the garage or in an electrical cupboard in the garage to ensure that that fire is contained within that area so that the fire is can come and put it out really quickly. There are all types of different types of fire suppression mechanisms that are putting to these sorts of buildings to stop the fire moving. And so what we see time and time again, and I have inspected buildings, I've gone in there. When you go into these rooms and you look up and you can see right up through the building.

Nicole Johnston: So the fire collars that go around these plumbing conduits are not there. And so that is a real concern. We see that time and time again or they're applied in a really haphazard manner. So they either not to specification then the appropriate type of color. So they're not going to be a fiction, you know, factual. Anyway. So that is one issue. Obviously we have issues where people are just drilling things through walls and putting, putting, you know, different types of, you know, parts or wiring. You know, you know there might be a trade that comes in, needs something through going through and then you're exposing, you're having a hole there that needs to be quite stuck and it needs to be fired. Right. That's another big issue.

Veronica Morgan: And that would just be pure ignorance wouldn't it?

Nicole Johnston: Well it shouldn't be. You'd think these sorts of trades should understand, understand this, but with, in relation to the fire separation, which is the sort of pacifier system that we are most concerned about and we've seen this in, you know, come about in relation to the Grenfell fire in particular.

Nicole Johnston: So each apartment is, should have fire resistant barriers right around their apartments so that if a fire starts in your home, in your apartment, for example, it doesn't spread or the or it's the fire is suppressed so it takes longer to burn through to another apartment. So it's very much as safety protective mechanism within these apartments so that fires are raging through if you've got a bad fire. Now the concern is is that some times the proper raided firewalls aren't put around the buildings properly around the apartments properly to contain the fire. So it's just using normal sort of, you know, chipboard or plasterboard. And so if there is a fire it will move quickly through it. It's the same with your fire doors. You know, if you don't have self-closing lock-ins or the proper doors on there, the fire will just go out blue widget open all the, and so that's what we saw with brand. Felt that the self close a lockers on the fire doors were taken off. And when people left, they opened the door, the door was left open, the fire just rushed through the door. The kid is closing after you? Yes. Well it's kinda Kimmy, it's going to protect you,

Chris Bates: I think. No, I mean I don't want to use grandfather as an example cause I think that's, you know, it was a tragedy and died. But do you think that, you know, a lot of the you know, I guess one of your worries with writing the report is that it might only get a little bit of air time and then we go back to watching married at first sight and getting on with our lives. We, we don't take it serious. Do you think that you know, it's the reason why we aren't taking Opal tower was a bit of a tragedy. It's no one died. You know, you know, mascot towers is a tragedy. No one died. Do you think that that's what the government needs to really take action and actually change things for the future?

Nicole Johnston: Well, I think so. I mean if you, if you actually sort of look, I think, you know, past behavior always dictates future behavior, doesn't it? So if we look at what's happened with the combustible cladding in country, and we had the lacrosse fire in 2014 the Victorian government started auditing properties in that state to see how many buildings had this ACP the combustible cladding on it. And then of course, not long after that, we did have the Grenfell fire and that's when every other state started to open their eyes. And so we had, you know, they've never been these sorts of fires in the other States, but everyone is legislating in relation to this product and making sure that there's, you know, going through these audits to see what buildings have this combustible cladding on it. So that wasn't, you know, we've had two fires in Melbourne didn't.

Nicole Johnston: That's right. We had a number of other safe safeguards that were very different to Grandville in these particular contexts in Melbourne. So everyone was able to get out of it. It's been a huge inconvenience and a huge cost to those people. But we haven't seen that sort of, we haven't seen deaths, but the Grandville fire really was, I think, you know, a bit of a waste, a bit of a catalyst for it. Yeah. I think what's happened here and, and you know, I think when I finished this report, I thought, yes, people might be interested in it for a little while. I never knew that this would be you know, the discussion that would continue for such a long time. And I'm so happy that it actually has, and I speak to the media regularly and the, the conversation is still happening. And I suppose the concern for me around it is that buyers in particular, we've been socialized, I think in this country in particular as in a lot of other countries that home ownership is is something that we should strive for.

Nicole Johnston: It's a measure of success and it's also a security for us to have that home. So it's, it's, it's a commodity that we are looking for and I think there's, in our nature when, when we're trying to obtain that. So I think we also think that these things aren't going to happen to me. If I go and get a lawyer and you know, I get some advice from some good people and you know, I try and look at, you know, the building or the builder and make sure that they're, you know, they're reputable or you builder that's been around around for a long time. I'm going to be okay here. Yeah, there's that, you know, and that's too hard to comprehend. Yeah, I think it is. And I think people just think, well, it's not going to happen to me. It must be happening to other people and you know, and then it can come and kick them in the back real quickly.

Nicole Johnston: To be quite Frank. Yeah, of course. You know, there has to be a lot of due diligence undertaken by a purchaser before buying into or contracting with SLR in relation to these sorts of products.

Veronica Morgan: Not easy to do this, to do it. I mean we do it. We, we do due diligence, but in my team, what I often say is like we have to ask all the questions, know the questions to ask and if we can't get the answers we have to tell the client we can't get the answers and the client needs to make a decision with their eyes wide open because getting all the answers is often impossible.

Nicole Johnston: Well especially with off off the plan sales, very, very difficult. You cannot everything when you're going into this. It is a leap of faith and it's a PR to me a bit of a scary leap of faith when you've got an existing building that may have been around for you know more than 10 years, you can do a lot of due diligence.

Veronica Morgan: You can bet if you want to check on the built like look at mascot towers for instance, 12 years and they started sinking into the ground and so we changed our approach from now basically any building built after 1999 we do additional searches on finding the information on builders and developers and it's really, really hard to find.

Nicole Johnston: It is very difficult. It is really, really difficult. And so but I suppose it's like anything that you buy, you can't know everything about it, you know, but you do need to make sure that you if you're signing before you sign a contract, when you're thinking about buying a property, you need to go and get some legal advice to ensure that you've got some good special conditions put into your contract as some safeguards in relation to investigation and due diligence that you need to undertake.

Chris Bates: So the elephant in the room is 100% for you.

Veronica Morgan: The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks, but also the ways in which you can avoid your elephant making the decisions

Chris Bates: Love for you to do for is just to share this episode and share other episodes with people around you that are going through the property process.

Veronica Morgan: Give us a review on iTunes. Five-Star, please would be very appreciated because this is about making sure that we all benefit from the wonderful information that our guests have been sharing with us.

Veronica Morgan: It's not always possible though in a rising market is it?

Nicole Johnston: Especially when you've got options and those sort of things are people are going off and just buying like that. It is very, very, it's quite scary to do it. Yeah, but if you've already been to someone, well, if you want to safeguard yourself, this is what you need to do. Yeah, I agree. Yeah. It's just something you have to do. So if you're in the market and you know that there's a lot of properties that you're interested in that are going for auction, go and speak to your solicitor so that perhaps you can on the day, get those sort of special clauses put into putting into a contract if you can. They might, there might be other buyers there you might be, but it's a safeguard for you to make sure that you can under do some, undertake some really good due diligence.

Nicole Johnston: Make sure that you've got a good solicitor who understands this particular property type and the issues that are impacting it. Not all conveyances and certainly not all property lawyers understand some of the issues that impact these property type and you need to spend the money to do it. And so one of the things I think is impacted upon purchases, decisions and getting the right information is, you know, sort of what was it now I suppose 12 or 13 years ago when sort of we had the rise of cut price conveyances in our markets and real estate agents would constantly tell purchases that you know, your legals are going to be, you know, four or five, six bucks with a few, you know, outlays and that sort of thing. Now that's just insane. When you are buying an apartment that seeks seven $800,000 you should be investing in getting good, proper legal advice.

Nicole Johnston: Even if it costs two or three, $4,000 to know exactly what you're getting. You're getting yourself into, you need to spend the money to get the right advice.

Veronica Morgan: There'ss limits to what the lawyers can do as well. I mean, cause there's, there's other things that need to be looked into when you're buying a property that's at a bare minimum really?

Nicole Johnston: Oh absolutely. And so there's information and disclosures that can be looked at, but then there's also an understanding of this property map. And so for people that are strata lawyers or Arina from with strata litigators that see this type of, what the end result of buying into this is constantly they can then you give you some advice about, you know, what potentially can be the, you know, the problems associated with this building type. So people might just need to be a little bit more careful. Then

Chris Bates: Issue with due diligence is it's a point in time, right? So I, you know, looking at a property in January, 2020 and I'm out there, everything I do, I'm, I do doing is I get the lawyer, we, you know, get everything checked. Everything's fine. You move in. That doesn't mean everything's fine, you know, and I think that the problem is you now start getting water issues, then you've got all the issues where no one's protecting. All these sort of issues can pop up. And so it's just the people don't really understand the risk, you know, that they're going if, if things change, if you buy a older apartment, let's say, and suddenly, you know, the, the, the recent there because there's only so many things that can potentially change. Yeah. I think the interesting point in this happening now though is that I think consumers are starting to switch on, I don't know about you, Veronica.

Chris Bates: I think a little bit, it's, it's been on the news and a lot of them are going to go buy old apartments and they're all rising in value because there's not enough supply. And then all the people who aren't buying those are now going back to these new apartments out of desperation and FOMO. So, and then they kind of just not doing the due diligence again. So I feel like, you know, we've just got a shortage of housing, so how are we actually going to solve the problem, which is a shortage of housing. And still build quality buildings. Like what is your, what's the solution? What does that mean exactly? So what are some of the things that you think that, you know, besides actually just lifting standards for builders, like what are some of the real like 80%, like the 20% of things we can do to get 80% of the results? Like,

Nicole Johnston: Yeah. Well I think, I mean the affordability question is a big question and it's not really my area of expertise. I can talk about, you know, the defects issues and around quality. The building defects stuff has been allowed to fester for way too long. So now we've just got a very big wound and it is going to take a long time to fix. So it's a couple of band AIDS. A few, you know, changes to the law or, or a few practice changes is not going to fix longterm govern. It's, it's, it's an all in approach. It's a holistic all in approach. Everyone that is involved in the construction industry needs to come together and try and work out a solution moving forward. The problem is we are going to have, as we've got currently apartments that have got problematic defects the next few years that will continue because we haven't, we can't do anything to stop it at the moment. And so we've got a lot of people, especially government looking at future stock, how to stop this in the future. The timeline in relation to that. And there's lots of moving parts because it's a complex issue because it's been allowed to fester for so long. And so that is a concern for me that we are going to have problematic properties still coming onto the marketplace tomorrow, next week, next year.

Chris Bates: Well that's it cause it's not just the legislation, nothing's changed. Right. The builders are still working, you know, old rules. Nothing's changed and it's, the new legislation is not going to be around for years because reality is, is so many conflicted interests in there and no one wants to take ownership. And even, I'm not going to change my process if you don't change your process. Right. And so everyone's just going to delay it. Yeah,

Nicole Johnston: There's moving parts. States are doing things differently. And also, you know, there's a danger in enacting legislation really, really quickly without proper evaluation. And this is what we see time and time again as a bit of a bugbear of mine, that what we are doing is we're not evaluating the current situation well enough to find out what has gone wrong so that then we can craft a better narrative through our legislation moving forward to make a change. And so what's happening, and we've seen this with the combustible cladding issue, is that many States are putting in legislation very quick, quickly, very limited consultation period. And they on the surface look really great, but we don't know what actually, whether it's going to have the effect, the desired outcome that we want from our laws. And so it is a slow process in a way to get to where we want. Yes, there has to be some stop measures. We need to do something to stop the water coming into these buildings. Something has to happen soon about that. But there are so many moving parts in his whole discussion about building defects and it will take some time to get this right. It will take some time to really fix, you know, to clean up this massive wound that's been developed.

Veronica Morgan: So it's really hard too because you know, certainly individual buyers, you've got bigger, I mean we had CEO of phrases, a mental blank, terrible rod fairing, right? Yeah. Rod fairing that we interviewed and, and the poor thing, I mean actually I read the intro and he was like, well, I'm not really sure what this is going to be like, but we wanted to interview him because he's like, obviously one of the big players. We want to understand what are the big players, what are the, you know, the, the corporates that are actually have a brand and have a desire to actually build quality product. What are they thinking about the whole thing?

Nicole Johnston: Well, the thing is, I think it's a great opportunity for them to step up. I think it's the perfect opportunity for them to go to the market and say, we understand this is an issue. We understand there's a concern. Be really honest and open about what has gone on in the industry, but make it very clear about what they're going to do. Practices ensure that their purchases are going to buy a safe product. So they need to make internal changes if they need to and then they can Mark it that are in the best position. Now to go out there, the big players here at T ones and say, we understand that there are concerns. They're real concerns. We have seen it in the marketplace because they would have, but this is what we're going to do to make sure that what you're buying is a safe building without the sort of systemic defects, perfect opportunity. Because they understand that.

Veronica Morgan: We talk about developers you know, really need any of the duty of care for an extended period of time. And it would be amazing, wouldn't it if one of those developers stood up and said, right, we're going to do it. Hasn't my legislator yet, but we're going to do it.

Chris Bates: I think the problem with that is though that there's such slim margins in development. It's not like this big cash cow. You know, every development makes a lot of money. Like some of them actually lose money. Some of them, you know, you think that they're making lots and lots of profits, but it's only because they're doing lots of volume. And so if you, if you're going to say to them, okay, yeah, you need to take care of this building for say 10 years, no insurance company is going to want to go anywhere near it because I don't want to insure these buildings. That's why there's no insurance, no insurance company wants to go near it, but there's actually, there's not enough profits in them. And so what developers are going to say, well, I'm actually not going to do it. The only way I'm going to do these, if I make more profits and so develops, we'll just pull it out of the market because it's not worth the risk.

Veronica Morgan: And so it's that affordability thing doesn't it? Because this is, I mean, it's a short term thinking to think we want to keep apartments affordable. I don't know, you could probably get on the tax angle in a minute. I.

Chris Bates: Go, no, just that the reality is like, so the developer's like trying to run a business and then again, there's only a small margin. They, they know that there's these, these risks. The more that they put into my better quality buildings, the less profit there is less time. And so I think a lot of developers would just pull out of the market and then we just got this problem where there's no one building. Do you think in it?

Nicole Johnston: Oh, no, I don't think so. I don't think that will happen. I think, I think that, you know, we're in a market where, you know property ownership is still still such a, you know, so King and I think in these urban areas in particular where, you know, the, you know, the cost, the purchase price is so very high. You know, for years we've been building good quality buildings. There's people out there building good quality buildings. It's not just simply that the cost of buildings is so expensive and therefore they've had to, you know, do things, you know, scrimp along the way and you know, do shotty work to be able to make some profit. There are builders and developers out there doing really great stuff and don't have these issues that are going back. So this is not every single person in this industry.

Nicole Johnston: I don't believe it for a minute. And so I think obviously, you know, the, the high end of town have got of, I've got, I've got these safeguards already. They know fees it, they died and they then to take these great feasibility studies, they know what they can do and their reputational capital here is right on the line. And so I would be calling on these, you know, the big, the big end of town, the T ones, the good quality builders. And we know that they're out there to be the ones that are standing up to say, come and buy from me. And these are the safeguards I've put in place to ensure that you are not going to get the lemon. At the end of the day,

Veronica Morgan: Just wandering around some buildings. It's so quick how some of them show signs, you know, just in war drove past a building the other day and I mean look, it's not, it's probably 10 years old maybe and all the paint. There's this like sheets and paint peeling off the front. Well it's obviously been filling up with water for a period of time to the point where literally sheets of paint coming off. You think that's sort of not really,

Nicole Johnston: You can see them if you, if you drive around it is very clear to see them. You can see the discoloration of the paint, which paints a really important protective mechanism on a protective element on a building. And so you can start to see that you see the, if the residency see that white stuff bleaching out of the building, which is water, water, water. And then you start to see corrosion of certain elements. You can see you can, you can drive past buildings and you can see all these sorts of things.

Veronica Morgan: Some really thin slabs. Yes. Like I don't, you know, I don't know what's code. I'm presuming that they are the absolute minimum, but like it's quite shocking sometimes.

Chris Bates: I think the whole slab got a base set for, you know, a certain amount of weeks when you go up each level. And so you look at a building and it's like 20 levels and it goes up in 10 weeks or so and so, and you're like, well technically they, every level is meant to be two weeks say. Yep. And then so, you know, even they're going up way too fast as a concrete not even set.

Nicole Johnston: Exactly. There's all these time pressures, time pressures, a big thing because it's all about, you know, ensuring you get it finished, you know, get, get the money in effect settlement can pay off the debts and that sort of stuff. Of course there's pressures in relation to these.

Veronica Morgan: There's developers that build and you've got developers, that contractor builder and so then you've got the builders. Got it, got time time limits in terms of their contract. And so if they go over time.

Nicole Johnston: Exactly. And if there's a delay in one area, and this is what we see in relation to the the waterproofing membrane issue in particular is because that needs to dry. And so, but of course you may have the tilers that are in coming in for the job. They have been, you know, a number of months out that was going to be their timeframe to do it. They've got another job to do. So that's like, Oh well it's sort of nearly there. Let's go ahead and stop putting the towels down. And then of course it breaks up a ration of the movement and the membrane. So, yup.

Chris Bates: So I think in terms of like the building industry per se what do you think that, yeah, when did it all start really going wrong? Cause I think you know, it, it was legislation change. So if you were going to like potentially protect yourself a little bit, should you avoid buildings, do you think from a certain year where you think that it started get much, much worse?

Nicole Johnston: Yeah. Well, I mean there's others that have sort of started to pinpoint it more exactly exact to me. I haven't gone back historically and looked at everything that people have generally said over the last sort of 15 years. It's really been, that's where this has become more problematic. And I've sort of seen that in my own experience as a researcher and having these conversations about these complicated defects over that sort of, you know, 10 15 year period. So that seems to be where the sort of thing started to arise. But don't forget in that period of time there may be buildings where people have taken a lot of action to fix the defect.

Nicole Johnston: There's good buildings out there. It's not that just any building that's been built in the last 15 years is problematic. It would be buildings out there that may have had defects early on I'd had that had gone through a good rectification process and now they are really great buildings. And that's the point. A good rectification process as well because I've seen some shockers. Absolutely. And one of the issues for people that are doing rectification is getting good legislation regulational guidance for them. So the national construction code, and not to get too deep about this, but that's, that is the minimum standards technical code to which we build in this country. Every state has adopted it through their building legislation. And so that is the, that is the instrument that we look to to give us how we build these types of buildings and minimum standards.

Nicole Johnston: Unfortunately there are minimum standards. They're not best practice standards, but that's an argument for another day I think.

Nicole Johnston: I mean, I guess the next question I was chaos it. So we're saying that we were talking about, sorry, the rectification where we as good rectification Broderick defense. Right? So the national construction code is for new builds. So when you are building something, that's what you look for if you are having to go back and rectify. There is not a lot of guidance or standards to look at to go through that process. So if you are the, if you are the specialist coming back into these buildings and you are having to Repub the tall and the membrane and then go through the building process of taking that off and then applying it again, it's very different from what you start when you start a building. And so that can be a little bit of a problem. And that's what we've seen in a country like New Zealand with the leaky building crisis. If some of those buildings are on their third iteration of leaks, it's because the process to do it has it been in, hasn't been sort of set out well enough for that to be fixed. Really

Chris Bates: Financial advice has been a lot of let me see advice. Right? And there all the banks are getting sued and putting billions and billions of dollars into, you know, funds to kind of rectification of all these people who have had poor advice. And you know, basically refund fees, losses, et cetera. Is there talk of within the building industry that, you know, if you're talking 15 years or building and you know, you've got all the big names in there, small developers, developers, et cetera. This is true. It's how much are we talking hundreds of billions of dollars.

Nicole Johnston: Oh, that, that is the, that is the question. That is the question. And so we don't know. We have no idea how big this is. And so if we look to something like you know, the Victorian government has, you know, put a fund together for $600 million to fix the combustible cladding issue in Victoria. Now the problem with that, and I think this has started going to be starting, you're going to see this in the media in the next few days and there was something in there today or yesterday as well about this, is that what happens is when you're removing the combustible cladding from a building, then you may be exposing a whole heap of defects that have been sitting behind.

Chris Bates: The Chinese wiring that they weren't meant to use.

New Speaker: The infinity wiring. Well it'll be an issue with, it could be with the the barriers, the fire barriers in the buildings. You might be seeing what's actually behind their Pandora's box. Could be that depending on where the cladding sits, you may have to take the tiles off and then the membrane mat might then be exposed and that sort of thing. So it's sort of a waiting to see how much this actually ends up costing. Ubut I mean it's hard to know at this stage. I think that's sort of probably the next iteration of research. But I have been to schemes, medium size schemes where they're up to over $10 million in rectification costs. Just one building, one building less than 50 lots. And yeah, and that's, and all of it's been, is at this stage about water stuff's, that's about the membranes on the balcony and the internal wet areas have had to be redone. And of course when you start digging around, then they've gone, Oh dear, there's some fire safety issues here. So they're going to have to go at again. Now at the end of the day, and this is probably comes back to, you know, something that you asked earlier, is once you get to a point where you have the rectification people in and that all gets cleaned up, if you get good ones, then you probably have a really good building. You have a built in the interim. A lot of people may have gone bankrupt because they can't afford the levies. But people coming in that might be able to get it cheap, probably get a good property.

Chris Bates: Yeah, sorry. There's probably an opportunity there for those people who are wanting to buy and the good, the problem with that is though that even if you do all the rectification works, you're just kind of getting it back to status quo and you're not, you don't have any value.

Veronica Morgan: Take it, take a leap of faith. And that the organizations that did the rectification work are any better than the development the first, well, the building.

Nicole Johnston: Exactly. So if, if you're, if you're a savvy by our investor and you've got a bit of cash and you know how much all these rectifications, the totality of the rectification costs are gonna be and you can work that out and you're willing to take that little bit of a risk or then it might pay off for you.

Veronica Morgan: Are you investing that way,

Nicole Johnston: No I'm not.

Chris Bates: I think that it makes sense. The problem is when you go and sell it, like if you, for example, let's say you got a car right and the something goes on the car and you go and get it fixed, you spent $10, you've still just got a car that's that money is lost, right? That money's just gone. Right. And it's the same sort of thing with his building, like just getting the building back to repaired. When someone goes to sell that, they don't really look at it and go, you've spent all this money on rectification works. They just look at it as a new apartment and they don't really look at all those details. So when you go to seller, they just say it was a two bedroom apartment, you know, it's worth roughly 600. You don't actually ever get a premium for those rectifications work. So you know, you just gotta be extremely careful because what you're doing is you're just literally throwing money away and we're talking like hunt.

Chris Bates: I, you know, if you think about the property market, about 7 trillion and that's, you know, the whole market. And then if you look at the apartment markets, maybe three, and then you look at that apartment market, maybe one or two of that is new buildings and then all of those is very high, you know, defect rate in those buildings. So, you know, 600 million from the state government's not even gonna repair like 50 buildings. So, you know, I think this issue's just, and that's great for the economy to do all these rectification works, but the people it's going to hurt is all the owners. Right?

Nicole Johnston: It's exactly right. It's exactly right.

Veronica Morgan: I wanted to ask you about that actually, because you've spoken to so many and you've spoken to lawyers that have helped them and there's been some harrowing stories. What are some of the ones that really stood out for you? I mean, I just, I want it to be a cautionary tale, you know what I mean, or vulnerable to take it seriously.

Nicole Johnston: Yeah. I think it's always going to be the people that have really saved young families. I think that have really worked hard to save their deposit to get their little, you know, slice of paradise. Often not, you know, in a city they might be on the fridges or fringes or they might be, you know, further up the coast and that sort of thing. And they've got their deposit, they found the apartment that's going to be, you know, suitable for their first place for their family. They've had to, you know, the mortgages is quite big. They don't have a lot of equity. They don't have a lot of anything else sitting around. 100% deposit may or may not have a lot of support from family to be able to get themselves out of these issues when it comes. And so, you know, they working hard day to day, pay the mortgage, pay the bills, you know, have a nice life and then they get hit with this and there is no way for them to get out of it.

Nicole Johnston: They can't get out of it. They don't have the equity to be able to do anything in their property. And they, their only option is to sell, sell cheaply. They created a debt, often go bankrupt because they can't service the debt that's left. And that, that to me is the heartbreak story here. That so when you're buying into this and, and for so many years, and it really annoys me, this conversation around that, you know, apartments are the cheap way to go. You know, for people that are young, you know, get into an apartment, you know, it's the cheapest type of property and that it's not, it is a costly vehicle. And so when you go into an apartment that's got all the facilities, pools, gyms, lifts, if a big building, it is a costly endeavor. And do you have to have the surplus funds to be able to weather that storm, just the weekly levies that you have.

Nicole Johnston: Plus if anything comes up in relation to the defects plus anything comes up in relation to how they were initially structured, they'll often times the developer will have a price point fixed for the levies weekly and it's very much under budget. And so you may go, you know, you might find a lovely unit that's $500,000 this is great. 60 or $70 a week for your levies. And within two years that will be 110 to 120 for sure. And so you need to be able to weather those storms. And so you do need to have surplus money there when you're buying into these sorts of properties.

Chris Bates: I think it's really good advice cause I think that's exactly what's happened in 2016 17. I think the state government have stitched up, you know, lots of first home buyers. It's not just state government parents, it's, you know, brothers and sisters. It's, you know, people you've made at your soccer football club. But everyone's just saying get on the market, just buy something. You know, you can't go wrong. Property goes up and you know, they buy an apartment, they even this government 5% deposit scheme. Like what, what are they, they're first time buyers in their singles or their young couples. They have to buy something under 700,000. Yeah. What does that buy them in Sydney and apartment? Yeah. Okay. So what type of apartments can they bought with a car? By the good apartments, cause they're more than 700. So they're all buying these new apartments with 5% deposits

Nicole Johnston: Because interest rates are low, you know, and you've got parents that'll say, Oh just now when we, when we started out, you know. And so this is the rhetoric that's constantly being told to new players in the market. And they have to, they have to tread very carefully

Chris Bates: Because I think there are any, we were seeing 4% so they've got 30 grand in equity, 50 grand. Let's say they've saved hard. That's hard to say. 50 grand, you've got to earn a hundred grand. So seriously tough. They haven't saved it yet. I mean even a client recently, you know, borrowing a bit of money from the brother and the parent, right? And so now that's okay cause I can afford it and they want to help. But like let's say they buy this apartment at 95% through this government scheme, they think they're only losing 5% and it can't go wrong. They're not paying stamp duty. So they're going in, well this is a free ticket and they buy this apartment and then bang, the defects issue happens. Yeah, they didn't do their due diligence or they have to sell it in two years time and it's only selling for five 50 and they'll lose, they're going to negative. And so I think that not many people want to talk about that because they just want to kind of talk out the market and hide these stories. I think it's a very good story

Nicole Johnston: And, and it's not to say that people can't enter the market, they might just have to do it a different way. They might have to think about thinking differently about what it means to own property. I think maybe gone are the days for a lot of people, specially in an urban area where an individual or two people can just come together and and buy these sorts of units from scratch. It may be, you know, thinking about ownership in a different way. It might be looking at Cindy kits or different ways. I'm not sure, but it's looking differently about what it means to own property, if that's what you want to put your money into.

Veronica Morgan: Yeah, I agree with that. That's it. That's it. Another interview or report

Chris Bates: Every week we hear incredible stories of the dumb things. Property buyers do dumb things that end up costing a whole lot of money and, or a whole lot of stress mistakes that can be avoided. Please. Nicole, can you give us an example of a property Dumbo? We can all learn what not to do from these stories.

Nicole Johnston: Yeah. So I haven't practiced for a long time so I'm not speaking to purchases all the time. But I think for me the biggest thing is around the issue of trust. I think we as a society, and I think it's a good thing, I think it's a good thing about our natures is that we trust people. But what is happening constantly is buyers coming into the market are trusting what the real estate agent is saying to them. They're trusting the promotional material that's provided to them. They're trusting the banks about what their, and their meet this misconception about the role of what a bank is. And so I did a research project a number of years ago where I spoke to a lot of people and these weren't young people, these people that had bought property before and they said, well, you know, the bank was required.

Nicole Johnston: They required me to give them the contract. So I sort of thought that they knew so that it would be all good thumbs up from them because they gave me the money and I'm like, they're not looking at the intricate details of the property. And so, but they're trusting that because I've also got a solicitor or a conveyancer involved that I'm okay, that I'm protected, that there is enough consumer protection law out there that will safeguard me from what I'm getting myself into. And that is a really big mistake. Yeah. Because it's awful, isn't it? He's awful. And so I think, I think there's probably the dumbness of all of us really, is that we are so trusting that if we engage professional people, that we will ultimately be safeguarded and we will not get ourselves into this sort of mess.

Veronica Morgan: Yes. And I think the issue there is that engaging professional people is great, but what we realized that buying property is complex and there's more than one professional. You need to engage. Yeah.

Nicole Johnston: To do your due diligence on the people that you're engaging. And so, you know, uncle Mick's friend who's the family lawyer around the corner that occasionally does convenience is not the person to help you with the sort of complex property and purchase. Yeah. Simple as that. Exactly

Chris Bates: Right. So I mean, you've got to, their experts do exist out there and who are you can trust, but you know, that's where you've got to do your due diligence, right? You've got to really go and pick these people, check what they're doing and yeah. And then also be always sitting a bit devil's advocate with them a little bit, you know, making sure double checking what they're saying, doing your own research. You know, because if you have picked the wrong one, you've got to like sometimes stop yourself. Right. So you often is that. You don't know

Veronica Morgan: What you don't know. So you go through this exercise, then you find out the hard way and then the next time you'll do different.

Nicole Johnston: Yeah. But you have to invest, invest the time in doing the research yourself and you know, it's all for now and everyone just wants to be able to go to the yellow, the yellow pages and find the person with the, you know, the, the, the star enough stars. But this is, this is a big property transaction, so you need to spend some time before you start looking into the market about who, who are your people to go do

Veronica Morgan: I know? And look, you know, in, in my business, particularly with conveyances, for instance, all lawyers, property lawyers, you know, honestly, you know, we've had a couple that way I've been using for a number of years, but over the years we've churned through them because you know, they quite often drop the ball. It's, it's a really, you have to have a passion for it, I think.

Nicole Johnston: Absolutely. I really care. And your law schools don't teach, you know, don't often have a unit or a whole course on strata title often. You know, as a law, as a, as a lawyer myself, you know, when I went through law school, I think we talked about strata toddling for maybe 20 minutes. So you learn the hard way. You're on the job. It's, it's, yeah. And it's a specialized area. And so unless you're really in it, you know, there's so many complexities to it that just a generalist in property law wouldn't be across those issues. And so, you know, that that's just, that's, you know, we're living in a much more sophisticated property market now. Right.

Chris Bates: Unfortunately, I don't really go too hard on saying, look, you have to use the act conveyance some when we were doing loans, et cetera. I just, you know, kind of just, it's not really, I say, look, we've got someone here and you know, sometimes I don't even, I just don't even think about it referring right. But just recently in the last few months, we've just had to say, we can you please use our conveyancer because the amount of times we've had problems where almost missing settlements, et cetera, where the combines just got no idea. Like, how to even actually works. How do the banks kind of fund it? You know, not checks happening, et cetera. So, you know, and that's because the consumer actually just goes online and just picks a nine 90 or inclusive and assets, you know, they kind of create their own problems. Thank you so much for today. It's a very important chat that I hope sticks around for the longest possible.

Veronica Morgan: Oh, that'd be great. Absolutely yes, thank you. Thank you.

Chris Bates: We want to make you a better elephant. Rider. And this week's elephant rider training is,

Veronica Morgan: Well, we talked a lot about strata and apartments and we talked a lot about fire as well. And I just told him, he might mention things you have to think about when you're buying houses, when it comes to fire. And look, it's just a small one. But if you're buying a semi detached house or a terrorist house in inner Sydney or Melbourne, I'm not sure if there are any in Brisbane. You know what, something is missing from a lot of the rubes of those houses. And if they've never been renovated that maybe they don't have firewalls up in the. So I've had situations where people have been able to go into a manhole in one terrorist and actually appear through the manhole of another terrace. So look obviously over time there's less and less of this happening, but it is something to look for if you are buying one of these properties where you've got an adjoining wall and you've got a, you know, a roof or an attic roof space and attic space to get up there and have a look or if the building speaker has gone and had a look, make sure that they've actually commented and confirmed that there is actually a firewall between the properties because if you had one got up in flames, the fire can travel on the roof cavity and basically don't burn down the entire row.

Veronica Morgan: Please join us for our next episode when we talk about tax. Now don't turn off. I can assure you this is actually a very, very interesting conversation. We talk about so many things regarding tax and property pitfalls, traps, you know for the unwary, all that sort of stuff. But we also have a few elephants that are revealed and we learned heaps so you are going to so really encourage you to tune in. When we interview accountant Alison Lacey, now he is a quick call out if you're interested in working within my business, good deeds, property buyers. As a buyer's agent, we're looking for people, at least one person to join our team. Now, if you are currently working in real estate, could be in a sales role, could be in a buyer's agent role and you're working and have a very good or familiarity with the inner West or Eastern suburbs of Sydney.

Veronica Morgan: We're interested in talking to you, but more than that it's around values alignment. If you love what you hear on this podcast, if you really want to be a champion for the right to buyers and you really care about the advice you'd give, then we definitely are interested in talking to you. We're going to have an information night on Tuesday the 10th of March, so please send me an email info@gooddeeds.com today you and we will send you some information if you'd like to come along, find out about what we talking about. Find out about whether the values align with yours and whether you'd be interested in joining us. Send us an email, don't forget we're on all the social channels. We're on Facebook, we're on LinkedIn, broad Twitter or you can connect with us on the elephant in the room.com today you, the links are all there for you.

Chris Bates: Please connect and send us a message we'd love to hear from you.

Veronica Morgan: The elephant in the room property podcast is recorded at the Sydney sound brewery. This week's podcast was recorded by John risk editorial by Gordie Fletcher.

Chris Bates: Until next week, don't be a Dumbo

Veronica Morgan: Now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent who will tailor and document their advice to your personal circumstances with a statement of advice.