Opteon are proudly partnering with the Australian Property Institute (API) to sponsor their annual Public Sector Conference in Sydney on Friday 18 November 2016.
Master of Ceremonies for the event is Phil Western, National Government Services and Assets Manager for Opteon. Today Phil is talking to guest speaker Leisha de Aboitiz from Massons, Australia’s commercial property law experts.
Leisha we now have a new strata renewal process, how are property valuations relevant to this new regime?
The strata renewal process is introduced under Part 10 of the Strata Schemes Development Act 2015 (SSDA) which commences from 30 November 2016. It is a new regime to facilitate the collective sale or substantial redevelopment of an entire strata scheme where 75% of lot owners support the proposal. Valuations are not only relevant to the process; they are an essential piece in the compliance puzzle. Put simply, a strata scheme will not be able to sell or redevelop without obtaining mandatory valuations at key stages of the process.
In addition to the critical compliance role, it is our view that early stage “optional” valuations will also be relevant from a commercial and practical perspective. Strata renewal proposals will not get off the ground unless it is clear that there will be windfall gain for both lot owners and for 3rd party purchasers/developers and valuations are likely to play a crucial role in clarifying the value which can be extracted by key stakeholders.
What kind of mandatory property valuations will be required, and at what stage in the process will they need to be obtained?
The Act calls for two mandatory independent valuations at two key stages in the process, namely when the plan is distributed to owners and when an application is submitted to the Land & Environment Court. On each occasion the valuation will need to include the “market value” (of the whole site, at its highest and best use) and the “compensation value” of individual lots. The SSDA is prescriptive about what these terms are intended to mean in the context of a strata renewal plan, and whilst it will be closely linked to existing valuation methods under section 55 of the Land Acquisition (Just Terms Compensation) Act 1991 we anticipate that a specific kind of valuation methodology will necessarily evolve under this new regime.
Who is likely to engage a property valuer during the strata renewal process, and in what kind of capacity?
There are likely to be various opportunities for valuers to be involved in the strata renewal process. For example, key stakeholders such as a potential purchaser or developer, or an owners corporation may want to engage valuers in an advisory capacity at various stages of the process. For example, this may include assistance with assessing feasibility, preparing market value comparisons, setting a reserve or sale price etc. A valuer engaged by a stakeholder directly will not be “independent” for the purposes of the two mandatory valuations contemplated under the SSDA, so a separate and clearly independent valuer will also need to be engaged. Accordingly, it is our view that there will almost certainly be multiple valuers involved in a strata renewal process (engaged by different parties in differing capacities).
Is the new strata renewal process having an impact upon the real estate market in NSW?
It’s hard to know what kind of impact this new legislation will have on the NSW real estate market until it comes into effect. However, we are already hearing of motivated schemes that have gathered the requisite support and are well on their way to progressing the renewal process come 30 November. Other stakeholders looking to take advantage of the new laws are obviously going to be developers and investors. It is our view that much of the initial movement in the market will be agitated by investors who already hold more than 75% of lots in a scheme and have long been held to ransom by a small minority. The new laws will allow these investors to legitimately push through a renewal process with their existing majority, or better still, to leverage off the mere suggestion that this avenue is now open to them. It will certainly be interesting to see how things develop, and how quickly.
Looking to Singapore, by way of comparison, the introduction of similar legislation allowing a majority of owners to collectively sell a whole strata site led to an explosion of “en bloc” sales on the market – more than 50 took place in the first 18 months and then sales cooled in unison with the general property market. We may see a similar phenomenon here in NSW if the existing requirement of unanimous consent for strata termination has caused a “bottleneck” of potential strata renewal sites, with groups of owners (or investors with a clear majority) waiting for the opportunity to sell or redevelop without having to get the last few reluctant owners on board.
Leisha de Aboitiz
Partner at Massons, Australia’s commercial property law experts.
Opteon are proudly partnering with the Australian Property Institute (API) to sponsor their annual Public Sector Conference in Sydney on Friday 18 November 2016.
