Christmas 2018 provided everyone in the Sydney property market a valuable lesson &/or reminder of the risks associated with buying off the plan or into new-build developments.
Residents of the freshly completed Opal building in the Homebush Bay Olympic precinct were evacuated from the building on 24 December after several residents’ experienced loud cracking noises in some internal walls. Whilst most were allowed to return on Christmas Eve (50 odd apartments were NOT allowed back in), they were all again evacuated on the 28th for “approximately” 10 days while expert engineers assessed the situation.
The building had been completed earlier in the year (2018) by a reputable developer and an experienced builder. I understand that the first residents moved in around August/September. The fallout from this will be phenomenal and the full extent of the disaster wont be known, probably for years. Whilst the ‘Blame-Game’ and big time lawyers that will soon start circling is entirely predictable, it’s the ‘little people’ that I’m most worried for.
Firstly the tenants. In a building of approx. 300 units there will have been some pretty ordinary Christmas’s and, unless an engineer comes back VERY quickly and assures everyone that they can return permanently, many will have just cause to void the lease and move out! The hassle of finding a new property along with the expense of moving isn’t great but … at least they can run for the hills.
Which brings us to the owners. I doubt they will be able to run away from this any time soon. Whilst I’m no engineering or building expert, simply identifying (and agreeing) what went wrong will probably
take months followed by months (if not years) of finger pointing between the developer, builder, architect, engineers, contractors, insurers etc. Meanwhile … what are the apartments worth today with the shadow of this defect hanging over it? 10% discount to market? I think not! 20%? 30%?? It would be a very brave (or foolish) agent who would look to take one of the Opal units to the market in the next 3-12 months. To double the pain for investors, I imagine new tenants won’t be lining up to rent there either.
Whilst bright, new, shiny developments look great and come with fantastic depreciation schedules, we suggest that a building of a minimum of five years old is preferable. Firstly it has hopefully already shown any glaring defects, which should be picked up in a pre-purchase Strata report. Secondly, you should get an idea about how the building is going to age. Poor construction or a lack of ongoing owners-corp maintenance will generally be evident.
There is always value in great property. Find it. Buy it. Love it!