New Zealand's $40 billion apartment sector looks to be in for a shakeup after a government minister hinted at big changes.
Nick Smith, Minister for Building and Housing, this week received a new heavyweight report seeking tougher rules and he indicated support for reform.
"I have asked officials to review these reform proposals and report back to me in August on potential options. I have also asked for a report on recent changes to unit title legislation in Australia to help inform any policy changes," he said.
"I am open-minded about reform. There is always a balance to be struck between the benefits of additional compliance requirements and the costs these impose."
His comments follow the Unit Title Working Group report from a group of experts who want a big overhaul of the system and an ombudsman appointed to rule in disputes and educate people.
Smith praised the work on the rapidly expanding sector where hundreds of new apartments are being built in Auckland alone.
"This is a thoughtful report and proposes changes to make our property law around higher density housing work better.
"It is particularly important as apartments and townhouses become a more popular choice and an increasing share of the housing market in cities such as Auckland," he said, naming three areas which need improvement:
Better disclosure rules to ensure people know earlier in the purchase process all relevant information about a unit or apartment and the governing body corporate.
Accessibility of the dispute resolution processes and whether the Tenancy Tribunal is best placed to resolve disputes.
The role of body corporate managers and their legal obligations.
Auckland Central MP Nikki Kaye spearheaded action, establishing an apartment blues website this year. She is delighted with progress.
"When I started looking into these issues last year, I never imagined the huge interest that would be sparked by the campaign. I represent a huge number of people who live in apartments, so I am passionate about these issues. People have told their stories via email or the website I set up. I was delighted several months ago to help facilitate some meetings that led to a working group of legal and property experts being formed," Kaye said.
The Body Corporate Chairs Group projects that by 2025, more than 6000 bodies corporate will be running more than 200,000 titles in Auckland alone. It estimates the value of Auckland apartments today exceeds $40 billion with annual levies collected of up to $1 billion a year.
The report was prepared by a number of specialists and experts: lawyers, property managers, industry groups and organisations such as the Real Estate Institute and Auckland District Law Society.
An overhaul could see a Queensland-style ombudsman or commissioner appointed to encourage mediation, rule on disputes and promote public education about buying and living in apartments. That person could demand information be supplied - another issue with the current system, where vital documents like accounts are sometimes withheld. No one educates people about apartments, warning or informing them of the traps and issues. So the report recommends that new chief also raises awareness through an education role.
The pre-purchase disclosure regime was in "urgent" need of reform and modernisation. People need to know more before they buy.
I am open-minded about reform. There is always a balance to be struck between the benefits of additional compliance requirements and the costs these impose.
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The existing lack of regulation on the handling of public money and record keeping is lax and out of step with other sectors such as real estate and financial markets.
There was an obvious need for the regulation of body corporate managers, the report said.
Abuses of the body corporate system could happen if Unit Titles Act provisions were badly drafted, complex and conflicting. Proxy "farming" is a technique used by some people to get a large number of votes on a body corporate committee to serve their own purposes.
"The main concern with proxy farming is the potential for an abuse of power ... with all the voting power in the hands of one person," the report said.
Issues abound over long-term maintenance plans and funds. Even when the plans are prepared, there was no legal requirement to fund them, the report said, calling for a body corporate register like the Charities Register where long-term maintenance plans are filed but can also be rejected if found to be inadequate by an organisation such as the Ministry of Business, Innovation and Employment.
People who knowingly sell apartments with big issues with the building or administration could be stung. There are now no statutory penalties on a vendor for failing to provide a pre-contract disclosure statement and the report said the apartment sector fell way short of others for consumer protection. Buyers need better information.
The report pointed to an unacceptable situation today with apartments, viewed as lock-and-leave, drawing people wanting to downsize or as an attractive residential sector entry-level purchase. The many problems dogging the sector mean significant numbers of New Zealanders "will suffer financially, emotionally and physically as a result of the problems they will be faced with as an [apartment] owner".