Body Corporate Levies: Why Are They So Expensive?

Why are body corporate levies so expensive?One of the first questions people ask when they’re buying a unit is “how much are the levies?” It’s a smart question because it does no one any favours to buy a property they can’t afford to hold. The body corporate levies are a large part of those holding costs.

Savvy buyers take the current body corporate levies and factor in increases when deciding whether or not a property is affordable.

That’s because body corporate levies do rise, and they rise almost every year. And that’s without accounting for “unexpected fees” that may crop up in response to stimuli, like a major weather event, a dispute or renovation.

In fact if your body corporate levies are not increasing it’s actually an indicator of a potential problem.

The high cost of body corporate levies is a consequence of the way schemes are run.

How high are your levies?

Any discussion of fees needs to acknowledge that body corporates have different needs, facilities and problems, and consequently different body corporate levies.

Body corporate levies differ vastly from scheme to scheme and are a reflection of several factors including:

  • Size and style of the common property
  • Location
  • Materials
  • Facilities

These are only the physical factors that will influence the cost of running a particular scheme. In addition other issues like building defects and how they’re addressed will also have a large impact on financial needs.

Another big factor will be the success of management. An excellent body corporate manager is a big plus for any scheme. Poor management will have flow on effects for years.

That’s true of the Committee as well. Sometimes Committees can be determined to keep levies as low as possible, which sounds good, but isn’t when it sacrifices needed works. Committees who spend money because they can are not helpful either.

There are a lot of factors that can impact on body corporate levies that are particular to the individual scheme itself, which is why a pre purchase strata report is so essential before your commit to joining a scheme.

I cannot stress enough: strata schemes are individual.

Having acknowledged that the rest of this article is about why body corporate levies as a whole are so expensive.

A body corporate engages professional workers

The key reason that body corporate levies are so high, other than the cost of the scheme’s facilities, is that nearly everything gets done by a paid professional.

Body corporates are heavily legislation in an attempt to protect people’s rights in a joint ownership and living situation.

The irony is that those same systems that are intended to protect are also generating so much complexity that professional workers have become the norm.

There are complex legislative requirements regarding meetings, finances and keeping of records, so much so that the best option for most schemes is to pay a body corporate manager to undertake those tasks.

The same applies to repairs and maintenance. The sheer number of tasks required to upkeep a reasonable size building often turn out to be so numerous and onerous to arrange that it really is simpler to just have someone on retainer to take care of it all.

The body corporate manager and building manager are keep players in most schemes but they are only the tip of the iceberg.

Legislation requires complex documentation such as Sinking Fund Forecasts, Insurance Valuations, Fire Safety Reports, Workplace Health & Safety reports and Asbestos reports. These are all common body corporate reports required by various legislations. An entire market niche has spawned to provide them.

Solicitors with expertise in body corporate matters is another booming segment. Strata issues are complex, there’s lots of legislation and plenty of case law and more importantly the situations and budgets that demand and allow professional intervention.

All of these different groups of people provide services to body corporates, all at a cost. And that cost is your body corporate levies.

Why pay professional workers?

Q1Q1 is an iconic Gold Coast building. It is also very large. Committee meetings for the Q1 have been known to run upwards of 10 hours. Can you imagine volunteering 10 hours of your life, every 6 – 8 weeks, to make decisions for your neighbours and co-investors?

Ok, not many buildings are this large or require this much work from their Committees.

That said, all buildings will require a fair amount of time and attention from their volunteer Committees, and that’s without undertaking any major works.

If everything within a body corporate is setup to fairly share costs incurred then what about leadership functions? Is it fair to expect some people to devote time to necessary management so that others can just forget about it altogether?

It seems to me that a fair off-set of the time that volunteers invest is paying professionals to implement the decisions. That way the majority of the work is actually equally shared between the lot owners through utilisation of their joint finances.

Yes it makes for higher body corporate levies, but it’s a more equitable split of resources.

Or course that’s just my opinion. There are many smaller body corporates who are reliant on one or two lot owners to pick up the bulk of the work around a scheme including doing mowing or cleaning themselves. Self-managing the body corporate records is a good example.

And it is a fabulous strategy for keeping levies low.

The off-set is that works may not be completed to a professional standard, and more importantly the whole scheme may be left without infrastructure if the person doing those works suddenly stops.

The benefits of professional workers

I often think if I had a cook and a cleaner I would be so much happier and my stress levels would reduce considerably.

Sadly I don’t have a cook or a cleaner and that’s because they’re unlikely to do it for free and I choose not to pay. And it is a choice, in the language of Financial Advisers, an off-set.

For a body corporate the choice is to pay. You get to enjoy the cleaner and the pool person and the handy Accountant who takes care of the nasty business of making sure everyone pays. The lights are always on when you come home, the garage door opens, the lift comes when it’s called.

And in the unlikely event that it doesn’t you make a phone call and someone else deals with it.

A body corporate is a lifestyle choice, and a rather nice one at that.

The off-set is you have to pay for it. And that is what your body corporate levies are for.

Luckily body corporates take advantage of economies of scale by sharing the cost of these services over a group of people thereby making the lifestyle choice more affordable for more people.

Why levies increase year to year

When you’re calculating holding costs of a body corporate it’s important to factor in increases.

Body corporate levies should increase year to year at least in line with CPI.

The body corporate is just another consumer, the same as you and me or the any local business. Price increases that affect us also affect the common property.

For instance, when the carbon tax was about to be incorporated into electricity prices the Strata Communities Australia sent a fact sheet to body corporate managers to help them calculate how much common property power costs were likely to increase so budgets could be increased correspondingly.

Most body corporates will also have a number of contracts that they’ve entered into for supply of services. The Body Corporate Management Agreement and the Caretaking Agreement are the most common.

Each of those agreements usually include a clause that increases the contractor’s salary incrementally at the end of each contract year, by a fixed percentage, or CPI, usually whichever is the higher.

So body corporates are set up to hire professionals to help them manage the scheme and those same contracts automatically increase year on year. An increase in costs translates to an increase in body corporate levies.

Ironically just as having contractors increases the need for increases it can also be a significant factor in decreasing the amount of levies. Good contractors are constantly looking for ways that they can add value by reducing costs or increasing service.

Conclusion

Units are often touted as the poor cousin to house ownership but I don’t think of them that way at all. Body corporates come in so many different sizes and shapes that if home ownership is your thing then you can still do that whilst still taking advantage of the higher levels of service and appearance.

In many ways the body corporate lifestyle is a choice for luxury, or at least few obligations for maintenance.

The off-set is body corporate levies.

How involved are you with your property? Leave a comment and let us know.

THE BASICS OF BODY CORPORATES

A little knowledge can go a long way


I see so many stressful and frustrating issues in body corporate records that result from simple misunderstandings it hurts my head. If I could do one thing to help it would be to teach everyone the basic rules, so they can avoid all these dramas.


With that in mind I've put together a short eBook that sets out the basics everyone owning in a body corporate really should know. It won't make those big issues go away, but it will give you a firm grounding from which to communicate.


It's completely free, so please, download it now!

Download Now

Comments

  1. Hi Lisa

    Excellent comments. I am based in Cairns but sell new projects and house land packages throughout Queensland and I am dumbfounded by the excess body corporate fees in Cairns say versus Brisbane.

    I am dealing with a project now for instance in Kangaroo Point that is 9 levels (off plan) and the anticipated body corporate is $2,800 per annum for a 2 bedroom unit.

    If the same project was in Cairns you would be paying between $5,000-$6,000 per annum.

    I know we are in an area that is threatened by the odd cyclone, but Brisbane also has massive storms and not too mention the flooding issues.

    Unfortunately until the body corp issues are addressed in Cairn we will not be as attract to investors as the South East Corner of Queensland.

    Cheers
    Terry

    • Hi Terry
      Thanks for commenting.

      I think that the cyclone issue in Cairns is the major difference. Specifically insurance. One example I saw was a building who’s yearly premiums went from $11,000 pa to $92,000 pa. There was an investigation into the matter by ACCC because some buildings were facing up to 800% increases. Unfortunately they found that the insurance companies weren’t actually being unreasonable but were increasing to factor in the actual cost of the likelihood of dealing with cyclone damage. The by product of course is falling unit prices and a stall in sales in Cairns and other North Queensland markets.

      Brisbane does tend to have slightly lower levies than comparable buildings in other areas. I think there are more companies offering services in Brisbane, hence more competitive pricing and correspondingly lower levies.

    • How mary units together need a bodycorp? I am in a 4 unit group but they’re are 2×2 so moreover like a duplex

      • Hi Judith

        To strata title you need a minimum of two lots. Strata titling is a form of subdivision that forms the body corporate.

        If you can purchase 1/2 of a duplex then the scheme will need to be strata titled hence have a body corporate.

  2. Teresa Retke says:

    Hi Lisa
    We have a lift maintainence agreement which is extremely expensive. We pay a substantial amount quarterly to them. There is no competition in town so we have no choice but to use them. Do you know much about these sorts of lift agreements? I can’t understand why we just can’t have a maintainence plan in place & contact them as needed.

    Teresa

    • Hi Teresa
      No I don’t know much about lift agreements I’m sorry.

      I do know the agreements are entered into as the most cost effective form for both parties. The AD hoc idea usually works out more expensive for the body corporate but of course all schemes are different

  3. Gordy Ladin says:

    As a Body Corp committee member of a major high rise building on the Gold Coast I can assure you that most levies are far too high and this is because the accounts supervision for long and short term building maintenance are appalling, Quotes from maintenance contractors are inflated by up to 300% because they know they are dealing with a committee which is spending somebody else’s money. ( I know some is theirs). Our building has a closely supervised micro management of all expenses and despite spending over $6million on maintenance in the last 5 years, and having big further commitments, still has a sinking fund of $1.5 mill. The lesson is, it can done and we are the only Gold Coast High Rise to Lower our fees in the last 5 years. Look at your costs with a microscope. Engage your manager in savings and not taking bungs from traders, They all do it. Just a few percent increase in efficiency will give you huge body corp fee savings, M,

  4. The comments and information are very helpful as I am at the present time contemplating selling my home to buy a unit on the Gold Coast which attracts a costly body-corp. However it is not Holiday Let but can be short or long term permanent rentals as well as residential owners. It is kept immaculate, right on the water, a high up floor level and 15 years old.
    Would I be right in saying the older the building,the higher the body corp becomes ?. Also I cannot understand how a huge increase in body corp can occur if its regulated with cpi? Can someone explain how this can occur? To my understanding in cyclone areas like Cairns,it is due to the Insurance levies being much higher to compensate for the misfortune if and when by and act of God?. My decision is for the security,the lifestyle and the assurance that my investment into this building complex is protected. I guess getting involved and being an active owner would make a difference too. Any extra information would be much appreciated such as how much the cpi rises each year regarding body-corp in QLD on the Gold Coast?, Is it a few dollars, a few hundred dollars or a few thousand dollars of which I would become very worried and on top of these body corp levies is there at any time an owner can be asked and expected to throw in more money? That would be a big No No for me on top of an outlay already. Thanks for the info

    • Hi Jen

      Yes the older the building the higher the body corporate. That said, the older the building the more in the sinking fund. Its rather a double edged sword.

      Levies payable per scheme are highly subjective. There are a lot of variables that can affect them. There are five key areas where bodies corporate experience problems. Rather four – building condition, body corporate management, legislative compliance and disputes – all of which will impact the fifth – financial viability. Poor money management is also a risk.

      Each scheme fares differently in these categories and issues in any will impact on levies. There is not a lot of sense in comparing with other schemes. Its best to look at the history of the scheme you’re considering and see how it’s behaved. This is the purpose of a pre purchase strata report.

      I hope that’s helpful. If you have further questions please let me know.

  5. Grant Austin says:

    I understand the need for levies, but administration costs and associated cost of my body corperate seem excessive in Townsville , ànd no it’s not a multi story complex .. who regulates what is excessive?

    • Hi Grant

      Levies are regulated and set by the combined lot owners. You have a chance each year to vote on the levies at the AGM.

      If you wish to influence the budget you will need to join the committee.

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