Ongoing costs can impact borrower's property budget
With the rising cost of property forcing some buyers to look at purchasing a unit rather than a house, experts warn they need to factor in strata fees and ongoing costs when considering how much they need to borrow and the affordability of their repayments.
According to Sydney-based broker and managing director of Two Birds One Loan, Alissa Childs (pictured above left), when assessing a purchase, clients are asked whether they are considering purchasing a townhouse or an apartment, so this is factored into the calculations.
“With borrowing capacity being so heavily impacted by interest rates, purchasing a free-standing house is not feasible for a lot of people so it is an important part of the assessment,” Childs said. “It is surprising how much the loan needs to reduce, when adding $300 of monthly strata expenses.”
“I also always talk about strata and the uncertainty of buying a strata property as you can be hit with unexpected special levies.
“We had one client who received a $60k special levy to replace cladding in the building, which is obviously an uncommon situation, but it demonstrates the importance of researching the health of the sinking fund and obtaining upfront strata report via a conveyancer.”
Childs, who spoke to MPA earlier this year about her brokerage experiencing “strong numbers” in owner-occupier lending, said car loans, novated leases, private-school fees, and credit card limits all have a huge impact on borrowing capacity.
“We had one client recently with a $3,500 per month novated lease commitment and it dropped their capacity by $500k. They were truly shocked.”
According to buyer’s agent Bronwen Stacey (pictured above right), whose company Home Scouts is based on the Sunshine Coast, there are a range of possible future costs, apart from strata fees, which may not be on a buyer’s radar but she would investigate as part of her due diligence.
Stacey said the upkeep of common areas, external painting, or the replacement of items such as railings, could often prove costly particularly if a buyer hadn’t factored them into their purchase.
As a buyer’s agent she would speak to the body corporate manager and access any relevant documents, to ensure the buyer was aware of any planned ongoing or additional costs.
Stacey said some properties which didn’t have expensive items to maintain such as lifts, may present the buyer with fewer future costs.
“Units that don’t have lifts and don't have common areas – the older units with stairs – they’re generally likely to have lower body corporate fees,” she said.
Unit rents were 4% higher over the September 2023 quarter and 15.6% higher over the year while house rents were unchanged over the quarter and 10% higher over the past year.
According to the report, rents are climbing at a rapid pace.
“The median advertised house rent is now $550 per week and the median advertised unit rent is now $520 per week,” the report said.
“House rents have been unchanged for six months, while unit rents have continued to rise. We expect the difference in price between houses and units to narrow over the coming months.”