Understanding the Success of Management Rights and the Tourist Industry
The global financial crisis has created enormous worries and concerns for Australian investors and Australians in general as we battle the fallout of what essentially has been because of investment circumstances beyond our control.
The GFC has hammered investments and their shareholders, investors and lenders, and this includes superannuants and large and small companies that have previously been successful and were key elements in Australia’s expanding economy. We are all well aware of the impact of the highly valued Australian dollar on the local holiday market, with Australia tourists heading for cruises and overseas breaks rather than going to their usual holiday destinations.
In Queensland we also suffered significantly from the impact of the floods and Cyclone Yasi in key holiday centres which had a knock on effect of people believing the whole of Queensland was shut down last summer.
While holiday numbers are improving, there is a definite sign that Australians are now cautious with their spending. It has lead to some concerns being expressed about the future of investment in many Australian destinations.
I believe it is important for owners and investors to understand that management rights generally works well. The size of our industry is $14.5 billion and real problems seem to be few and far between. History has shown that management rights is appropriate for all buildings, big or small, because all buildings have job commitments that must be attended to usually on a daily basis.
If some of the sinking funds earlier on are an indication of body corporate spending on maintenance, if there is no manager, even the day-to-day running would be a problem.
Owners may offer their services to do certain things but, at the end of the day, their unit is their home and they need to enjoy living within the building without having to tie up their personal time. The unfair system that this leads to is that some owners may participate while others will not, leaving those who do participate are giving time while others do nothing.
Management rights is a large part of the tourist industry and is the largest supplier of accommodation to the tourist industry.
We at ARAMA believe that, within our industry, agreements have to be long agreements so that management can cement deals with the tourist suppliers and have a long and successful association with them as the tourist industry is based on contacts with suppliers and these suppliers prefer to work with operators who have been around for a long time.
The wholesaler is happy to work with us because he is confident that we will look after him and also look after our guests who, after all are also his guests. To be successful in the industry we have to have long contracts and this allows us to cement long standing relationships with the various tourist providers as this is the basis of a successful tourist industry.
We as operators have to appease the supplier who is sending his life blood – the tourist – for us to accommodate and look after their well being. A happy guest will book again with “his” travel agent. The longer contracts are very beneficial to the tourist industry.
Some of the problems that evolve within the strata system are not so much between manager and resident, but because of the mixture of resident and tourist within the same building. The two have nothing in common, one is trying to live the quiet life because he is either working or retired, normally goes to bed early because he has to go to work the next day or his age is such that he has to go to bed early.
The tourist, on the other hand, is on his annual holiday and generally while on holiday will let his hair down a little. When the holiday is over, he reverts back to being a resident. He becomes the very person that he has just upset while on holiday.
Because the two parties are not compatible and requires good management, perhaps in a perfect situation, all prospective buildings could be stamped residential or tourist when developers are seeking town planning approvals. The resident is entitled to his peace and quiet (not that all tourists are rowdy) and the tourist is entitled to enjoy his holiday and not be harassed by a resident who sees most tourists as noisy individuals who wear out all the facilities of the building.
If parted, the only problem for the resident is whether or not he can live communally.
But this is something that cannot be controlled or legislated for.
The developer can target whichever market he believes is the market of the day. If he believes the market will demand a higher priced unit for residents, his building will reflect the market requirements and the units will be expensive. If the market indicates there is a shortage of holiday stock, then he will aim at the tourist market and he can purpose build his project. This will probably be in a cheaper market and contain tourist friendly facilities.
This will also help the investor with a return on outlay. If the unit is half the price of the expensive unit, then the return on outlay will be much better.
The tourist is very price driven and while he would like the expensive unit, he will not pay the tariff required to show a return on the unit cost.
These types of “specified” buildings are of benefit to the general market and are of benefit to the resident, the tourist and the investor.
Queensland’s tourist industry netted our state $9.4 billion dollars last year.
For the good of the tourist industry, several suppliers to the industry should have audited trust accounts as we as resident managers hold significant amounts of money on behalf of residents and investors, travel wholesalers, Internet wholesalers and holiday package suppliers.
Anybody or person who holds money on behalf of the travelling person when the money held is on behalf of another party should be accountable.
Chris Ward
ARAMA
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