The concept of strata title in Australia has been around since 1961, when legislation was first introduced into New South Wales. Essentially it was introduced to facilitate lending for housing.
Prior to strata title, many flats were sold as either company title, where shares in a company that owns a building entitle a shareholder to the exclusive use of a particular residential unit, or the land on which a building was constructed was sold to make the owners "tenants in common."
However, these forms of land title didn’t confer separate ownership on individual occupants, and banks and building societies were not then keen on lending money, with interest rates charged generally higher than for houses.
After the passing of the law in New South Wales, other Australian states and territories brought in their own legislation, and while there is a degree of uniformity among some of the states, no two pieces of legislation are the same.
The Australian model has since been exported to a number of countries, including Canada, Singapore, South Africa, Indonesia, Malaysia, the Philippines, India and United Arab Emirates.
There are now more than a quarter of a million strata schemes operating across Australia encompassing more than two million individual lots. In Sydney, strata now accounts for more than half of all residential sales and leases because of its popularity with investors, and it’s estimated that by 2040 half of all people in NSW will be living in strata accommodation.
Despite the growth of strata schemes in Australia, the legislation around their management has not kept up. Redevelopment of many older buildings past their use-by date did not occur as developers seeking to purchase an entire complex could be blocked by individual ‘hold outs’ even though the proposals were supported by a clear majority of unit holders.
But the game has changed. As New South Wales led the way in bringing in strata regulation, it has led the way in reform, with a significant raft of changes introduced late last year.
The key change makes it possible for owners in a strata scheme to jointly end the strata scheme so the site can be sold or developed.
The new legislation allows for just 75 per cent of owners in a building, instead of the previous 100 per cent, to vote to make sweeping changes. Since it’s rare that every owner in a strata building will ever agree to anything, this amendment has tremendous potential both for developers and for housing supply.
Developers are already doing deals. In Sydney’s beachside suburb of Cronulla, private group Iridium Developments purchased four freestanding unit blocks from two strata corporations for $54 million.
"A group of Cronulla apartment owners have sold their units for double their worth in the first sale of what could be a unit block gold rush, following a recent change in strata laws allowing a majority of owners to force their neighbours to sell their homes," The Domain reported. "Four blocks of eight beach-side apartments in Cronulla have been sold together for $54 million, doubling the estimated value of the units, when the money is distributed.
"All 32 owners at 49-51 and 55-57 Gerrale Street, across from Cronulla Beach, had been thinking of selling their small, ageing unit blocks after changes to local planning laws made the combined site more attractive to developers."
There is no doubt the strata sector provides the solution for the future of New South Wales property supply and will drive exponential growth.
The 100 per cent rule was holding back urban renewal in established areas with older style lower density apartment buildings. High density residential development in these areas is key to meeting the demands of Sydney’s growing population.
The New South Wales Government’s Issues Paper, Sydney over the next 20 years, has forecast that the population of Sydney is expected to rise by 1.3 million and we will need 570,000 extra dwellings by 2031.
The changes align Sydney with other global cities such as Singapore which has an 80 per cent threshold (although Singapore’s increases to 90 per cent for newer buildings).
A campaign is already underway in Queensland for similar changes to be made to the state’s strata management legislation. Prime development land on the Gold Coast occupied by smaller, older buildings is ripe for urban renewal.
Developer lobby group Property Council Queensland says that new body corporate laws are long overdue.
Given the Cronulla example of what’s achievable, it’s likely the property industry in other states will start applying pressure for governments to pursue strata reform.