Grave Concerns for Mum & Dad Investors
Many thousands of ordinary Australian families have a major proportion of their retirement planning in a holiday apartment investment in Queensland.
We frankly feel let down.
Our investments make less sense every year. Our costs are rising so rapidly.
This is not a new problem. A previous president of the Unit Owners Association of Queensland before me used to say more than 10 years ago that there were tens of thousands of investment unit owners going slowly broke with their holiday unit investments. No one wanted to talk about it or admit it, for fear that they wouldn’t be able to sell. They also wouldn’t want it known how silly they were for investing in such a poorly performing industry.
I just about choke each month reading the latest edition of this publication where industry leaders try to talk about how vibrant and sustainable this new management rights industry is. We need urgently to address the increasingly unsustainable costs of investing in most holiday unit complexes. There is no point in talking about the very few complexes that are working satisfactorily for individual owners. Each year costs are rising and the investments are becoming more and more unsustainable.
Now I want to be part of the solution and I’m talking about this ‘elephant in the room’ in an industry publication, not to alarm investors further or to provoke lunatic fringe reactions to politicians. We have to urgently address the financial returns to owners. We are in danger of whole sections of our industry joining the US property industry demise. We have to face it that the mothballing of Kooralbyn and Whitsundays complexes are just the start and will continue until we have solutions.
Many older resorts are on the way to being ghettos and slums because the annual costs are so high the owners run away and the banks are forced to sell. I recently went to an auction in a resort at beachfront Mackay. Now Mackay is a major centre for the miners, the one bright spot in the Australian economy. Many mining industry employees commute daily from Mackay and there is a huge shortage of rental accommodation, so there is a good demand.
This self-contained, bed-sitter bungalow that was the subject of the mortgagee-in-possession auction, was in a truly delightful location – probably the best in the complex with absolute ocean views and the sounds of the surf and seagulls right at the front door. A few thousand dollars sprucing it up with a lick of paint some functional, funky furniture and a new air conditioner and it would be ripe for the rental market, this southerner thought. The complex has a large, tropical pool and tennis court, plus a disused bar/restaurant and conference centre. Perfect.
Then I started asking the real estate sales persons some questions. Neither salesperson knew the basic answers to some very important questions, like whether the bungalow was standard format plan or building format plan (in standard format, individual owners are responsible for the maintenance costs of their apartments, in building format plans the body corporate covers external maintenance costs of the complex). The individual owner needs to know what they are buying and what likely costs they will be responsible for now and in the future.
What we were able to discern from the disclosure statements were that the annual body corporate levies on this one room bungalow are $6000. The penny dropped. Add at least $2000 for local government rates, another $2,000 for electricity (both these monopoly suppliers, local government and electricity providers, are protected by government legislation and these estimates are probably minimum charge amounts now and both should be expected to rise faster than holiday returns). Now add $2000 extra each year for building insurance for the new owner (insurance costs above the Tropic of Capricorn have meant that this is a conservative estimate of what each North Queensland body corporate owner will be expected to pay as their contribution to the complex’s building insurance).
That means basic fixed costs for this particular bedsitter are $11,000 a year and rising rapidly. You cannot either rent that out permanently to a young miner or rent it to holidaymakers/backpackers through the on-site resident manager (who the real estate sales person said wasn’t very co-operative! Talk about talking up a property to a prospective purchaser!) and receive any sort of return on your money invested.
The bank was surprised that the only bid on the beachfront bungalow was $80,000 and that was from the only other potential bidder at the auction in the fastest economic growth region in the state, an opportunistic and optimistic young tradesman who works in the mines. He’d probably pay for the unit on his credit card and regret it for ever!
How are we as industry spokespeople going to approach this issue of uneconomic complexes?
We have to stop the government and industry monopolies/duopolies from simply adding more costs for a start. The flood levies, stamp duties are huge, land tax is a further grab.
Energy costs are rising rapidly and apartment blocks are particularly susceptible to these increases because there have been no incentives by government to allow them to afford newer technologies or for them even to find out what is becoming available to become more energy efficient. Any government incentives such as solar power and green initiatives, even the ill-fated insulation program, were directed at traditional individual stand alone homes. Our customers the holidaymakers are demanding more and more air conditioning and expensive electronic goodies in apartments, costs of complying with govt initiatives like carbon trading are likely to further increase.
Individually-owned self-contained apartments comprise the largest sector of holiday accommodation providers, yet it seems to me that most politicians and industry experts ignore strata apartments and concentrate on the need for fresh hotels to attract the international and domestic tourists. How are we going to encourage existing resort investors, the mum and dad people, to borrow more money to freshen and update our premises to keep them attractive for holidaymakers who want kids clubs, gyms and spas for their holidays?
These are serious issues. We have to be serious about solutions but first we have to recognise that the mum and dad investors are hurting and need help. I put many resident managers in the same boat. They are seriously in similar strife if they are in smaller complexes; their costs are rising exponentially and the GFC is seeing their tourist numbers down and costs rising rapidly so it is not a simple us and them argument. It is a whole of industry issue that needs articulating and discussing until solutions emerge that we can articulate and put to government.
Garry Maynard
Queensland Body Corporate Association
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