Blurred Lines: Real Estate vs. Strata 1

Monday, August 1st, 2016
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Given that owners corporations in their early days were largely managed out of real estate offices, any suggestion that real estate agents should keep their noses out of the strata management sphere may at first seem a little strange.

Yet as the concept of strata has grown amid the increasing popularity of multi-residential living, so too has the prevalence of specialised strata managers in an area which nowadays is subject to its own set of regulatory requirements.

At the same time, increasing numbers of real estate agents are likely to look to body corporate management as a means to diversify their income over coming years as the real estate market cools and demand for strata management increases in response to massive volumes of new unit and apartment stock which are expected to hit capital city markets over the next two years.

Not surprisingly, then, debate about the merits or otherwise of having real estate agents perform strata services as opposed to specialised strata managers doing so is heating up. In a recent Fairfax Ltd article, for example, Strata Choice managing director Scott Martin talked of cases in which his firm had taken over situations where real estate agencies had been in charge and had found leasing and strata activities mixed up on singular accounts. Real estate agents also typically focus around sales and property management and do not always understand significant issues relating to strata, Martin states in the article. These include the difference between common property and individual lots as well as some of the idiosyncrasies of strata legislation, he says.

At the outset, it should be acknowledged that there are no serious issues associated with real estate agencies setting up or maintaining focused strata practices or divisions within their agency provided those whom they employ possess the skills, knowledge and experience which are necessary in order to deliver successful outcomes from the viewpoint of clients. Indeed, a large number of agencies have maintained focused strata divisions for decades – many of which no doubt deliver very high standards of service.

Nor is there any reason why at an individual level, a real estate specialist or any other professional could not transition into strata management provided they equip themselves with the required knowledge and expertise to do so.

Rather, the issue instead arises with those who ‘dabble’ in body corporate management without being fully equipped to effectively manage all of the complexities involved in strata and owners corporation management.

Furthermore, the attraction of strata from an agent’s perspective cannot be understated, especially in light of easing sentiment about near-term prospects for the real estate market. Thanks to the current boom in apartment construction, around 230,000 new multi-residential units and apartments are likely to hit the market throughout 2016 and 2017 – a lot of dwellings whose owners will collectively require body corporate services.

Added to that is the fact that strata management services provide greater contact with property owners in terms of traditional real estate sales and listings. A recent report from Macquarie Bank suggested that on average, real estate agencies who offered strata services experienced gains of 19 per cent in both sales listings and property management contracts over and above what would have been the case were strata management services not offered.

So what the problems? Is the push by agents into strata generally a good thing?

Provided they are suitably qualified, Strata Community Australia chief executive officer Kim Henshaw says the answer is yes.

Henshaw cautions, however, that strata involves skills and expertise in a number of specific areas which may not transition directly across from traditional real estate activities in an automatic fashion. With laws governing strata differing from those which control land sales or residential tenancies, for example, body corporate managers need to have a sound understanding of specific strata legislation in order to identify areas of risk which need to be addressed and processes or procedures which need to be adhered to from a compliance perspective.

In contrast to the individual property nature commonly associated with real estate leasing, meanwhile, strata managers deal with areas of common property and must therefore understand how entire systems and people interact together across the building. In terms of people skills, finally, strata managers need to develop long-term relationships and must be comfortable in resolving conflicts between multiple parties. These skills may not be as crucial in the transaction based nature of traditional real estate operations, Henshaw says.

Henshaw says the importance of strata as a standalone specialisation can be seen by recent federal government moves to discontinue the Certificate IV in Property Operations and to recognise strata management as its own stream of specialisation in terms of occupations from a vocational training perspective.

He says agents commonly look to areas like owners corporation management as a means of diversifying their income stream when the real estate market turns downward.

“We see this from time to time,” Henshaw said. “As the real estate market starts to turn down as it is doing at the moment, we often see real estate agents look to diversify their service offerings.

“For them, strata seems to be the easiest one (area to diversify). It’s not a new phenomenon and from our point of view, we see it every time there is a downturn in the real estate market.”

Real Estate Institute of Australia president Neville Sanders offers a slightly different perspective. Whilst acknowledging that there are areas of expertise which are specific to strata, Sanders says there are a number of areas in which expertise developed through a general real estate background flows through into body corporate management. When dealing with mixed use complexes, for example, a good understanding of residential and retail tenancy laws is essential. Likewise, the background which those with experience in commercial and industrial property leasing and management gain with regard to compliance on safety matters translates directly into strata, Sanders said.

What is important, he says, is not whether or not a strata team is part of a real estate office or a standalone strata management outfit, but rather the quality and experience of the people involved.

“The best strata mangers are not necessarily part of a real estate office or a strata office,” Sanders said. “They are the ones with the right education in property law and in strata laws and who are (suitably) experienced.”

As the real estate market slows, the temptation amongst real estate agents and offices to push into strata management is set to intensify.

Provided that those doing the work are able to handle strata matters properly and well, the biggest winners out of this will be property owners who benefit from greater competition.

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  1. Charles Litho

    Any young person buying real estate on strata title must have rocks in his head.
    The unique Australian 1870's concept that all land should be defined in dimensions is not done with Strata subdivisions.
    Going into partnership with strangers who are often totally unethical or mad in a property is mind boggling.
    Land grows in value and gives you a degree of freedom; has anyone seen strata properties increase in value as land has done in the last few decades in inner Melbourne. Value the freedom to act for your self in all things and keep buying land not pieces of biodegradable material stacked up to fall down one day.