One of the hottest segments in the property market right now is the entry-level apartment.
That’s thanks to the Federal Government’s re-cast Home Guarantee Scheme (HGS), which is proving to be a game-changer for first-time buyers.
Agents are reporting a greater level of inquiry and attendance at auctions for apartments as young first homebuyers jump into the market.
Industry researcher Cotality says the entry-level tier experienced price growth of 1.2% for October alone. It anticipates a similar value acceleration in the months ahead.
Agents and pundits alike say the HGS is fuelling demand and putting upward pressure on prices.
The scheme, released on October 1, sees the Government guarantee 15% of a home loan deposit so long as the first-time buyer can put 5% down.
This means first homebuyers can avoid the punitive Lenders Mortgage Insurance (LMI), a policy that commands a non-refundable, five-figure fee that protects the borrower against the risk of buyer default.
The LMI fee, which varies according to mortgage size, is usually calculated with the loan, thus diminishing your purchasing power.
With so much activity in the apartment sector currently, we have provided some essential advice for first-time buyers to help them understand some of their obligations as an owner.
Strata scheme – The strata scheme is an important concept to understand if you’re purchasing a unit. That’s because you’re not only buying an apartment but also a share of the entire building and its common areas. You’ll have a shared fiscal responsibility with other owners. This is how apartments are legally set up in Australia.
Strata fees or levies – Quarterly fees are charged to cover the cost of maintenance, insurance and management of the common property. The funds usually go into one of two funds (see below).
Administration Fund – This is used for the day-to-day running costs of the building, such as maintaining gardens and paying for a strata manager.
Capital Works Fund – All strata schemes have a Capital Works Fund, which exists to pay for major improvements or repairs to the building. Some people call it a “sinking fund”.
Special levies – If your Capital Works Fund can’t cover the cost of necessary repair work, you may be required to pay a “special levy”, which will be demanded by the Owners Corporation (of which you are a member).
Protect yourself – Before committing to a purchase, commission a strata report. It will reveal the financial state of the Capital Works Fund, and it will tell you about any capital works being planned, and pending legal disputes. You should be comfortable that this fund has a strong financial footing, or you risk some unwanted bills down the track.