2020, what a year that was! COVID-19 shook the world, but also our world of WA Strata went through some significant changes. One of those changes was the revamped Strata Titles Legislation, in particular, Regulation 77 - a legislative change affecting designated strata schemes* requiring a 10-year maintenance plan, mandatory reserve fund and regular reviews of the above-mentioned.
As one of the results, buildings planning on small maintenance jobs here and there, were now incentivised to complete these projects as one large undertaking by planning ahead and investing into the reserve fund, increasing the value of their assets. The mandatory reserve fund was a step in the right direction, though, strata companies still needed to budget and decide how much to put into said reserve fund.
Two years later, we have assessed how Strata Companies adopted the new regulation and how they are coping with yet many more hurdles the market threw at us due to COVID-19 and beyond. Hurdles that made budgeting a 10-year maintenance plan challenging, to say the least.
Rising material costs – Who could have expected an increase in petroleum by 40% over the past two years? Similarly, costs for other raw materials such as timber/lumber, iron and steel have skyrocketed. Costs, as measured by the Producer Price Index, have increased 14.5% in WA in the last year, including more than 5% in the December quarter alone. These numbers are similar to those experienced during the mining boom.
Shortage of materials – Apart from a rise in costs, there is also a considerable material shortage, fuelling the price increase even further. This is also reflected in the rise of inflation in Australia, with the highest increase since 2001 in the Perth CPI.
Labour shortages – The fight for talent has never been so prevalent and the construction industry has not been spared. Labour shortages lead many companies to increase wages and staff incentives to attract and retain workers. This, in turn, impacted the price of construction/building projects. Despite this trend affecting all of Australia, WA has faced exceptional challenges due to the COVID-19 related border closures limiting the influx of workforce from other states and abroad. As a result, the number of job vacancies now exceeds the number of the unemployed in WA in 2022.
As a result, reserve funds may need to be re-evaluated with impending repairs and maintenance projects needing to commence. This will invariably be disappointing for owners and despite the nature of these hurdles, it can place the Strata Manager in the firing line.
Jamie Daniel from The Strata Co explained that these issues are extenuated in regional areas of WA due to labour constraints, forcing Strata Companies to spend money on flights and accommodation for contractors on top of already high costs. Jamie has also found that some Strata Companies are just delaying works that are due in the reserve plans until more funds are raised to cater for higher costs. However, some types of repairs and maintenance can degrade further and the overall costs increase significantly.
When project costs exceed available funds, Strata Companies are faced with delaying works and taking the risk of increased costs, raising large special levies or taking out a strata loan.
At StrataLoans, we have found over the last 6 months that Strata Companies are coming to us for large projects like roof replacements, as costs have grown beyond budgeted expectations and with lack of tradies, works are taking much longer to be completed.
The advantages of using a strata loan are that the works can be undertaken now, additional costs may be avoided and owners can benefit from the completed project sooner. The other advantage of financing in this way is that a Strata Company may be able to combine multiple future projects into the one loan and save costs on shared elements such as scaffolding.
StrataLoans may not be able to assist with the cost rise, but agreeing to the works and using our funding can mean the works can be completed sooner and hopefully eliminate a further increase in the price.
At StrataLoans, we are here to help – please get in touch with us if you would like to discuss how we can help your clients deal with funding projects like these.
* A designated Strata Company is a scheme with 10 or more lots or a building replacement cost of more than $5million or, for a survey strata scheme, a replacement cost of improvements on the common property being more than $5m.