More than one local apartment block in Potts Point and Elizabeth Bay has been the subject of our state’s ‘strata renewal’ rules.
These laws, which were introduced to the State in 2016, allow developers to acquire all apartments in a block if the owners of 75% of the lots agree to sell to them.
We take a look at how it affects you as a property owner or buyer and what it means for the real estate market in our local area.
What are the strata renewal rules?
Traditionally, it has been difficult for developers to repurpose, renovate or rebuild an existing apartment complex. That’s because they needed to acquire every property in the building.
As a result, many of the big renewal projects we’ve seen in Potts Point and Elizabeth to date have involved the redevelopment of hotels, pubs or office buildings, where the developers needed to negotiate with just one – or at least only a few – owners.
The previous state government believed that one way to solve Sydney’s housing crisis was to upgrade older, low-rise buildings into larger, more modern ones.
The solution it came up with was to change the laws around acquiring property, allowing a developer to compulsorily acquire apartments if 75% of owners in a block agreed to sell to them – a process it called strata renewal.
How does it work in practice?
The strata renewal laws work similarly to the corporate takeover laws, which allow someone to compulsorily acquire stock from shareholders if they already hold 75% of that company’s shares.
Under the strata renewal laws, the owners of at least 75% of the lots in a complex need to vote to sell to the developer. Then it has the right to acquire the remainder – in the same way as the government can force homeowners to sell. These compulsory acquisition laws were made famous by the Aussie film, The Castle.
However, as The Castle made clear, dealing with a property can be very different to dealing with shares. Sometimes, there can be good reasons for owners not to want to sell. Sometimes, owners feel they should be paid more than the developer offers. Then, of course, there is the fact that homes are emotional, creating memories that can be hard to leave behind.
For that reason, there will always be people who don’t want to move on. So the former state government also introduced rules to deal with this, allowing owners to appeal the decision to the Land and Environment Court for mediation.
If this happens, the court can make its own ruling on whether the developer should be allowed to acquire an owner’s property and how much they should pay. In doing so, the court examines factors such as whether the owners are receiving a fair amount. When it does, it won’t just look at market value but also the cost for ‘disturbance and relocation’.
In other words, it expects owners to receive more for their properties than they would if they were selling on the market under normal circumstances.
Potts Point a prime area for strata renewal?
Our area could be a prime target for developers acquiring buildings under the strata renewal laws. There are many older and smaller apartment blocks here whose footprint could potentially support a more substantial development.
There are also blocks of older-style apartments that could be repurposed into homes designed for modern living. After all, there is a shortage of certain apartment types in our area (most notably larger apartments suitable for downsizers). The strata renewal laws could be a vehicle through which developers attempt to provide this stock.
Developers have reportedly also gone past the 75% threshold needed to acquire The Chimes on MacLeay Street (it’s the apartment block that made headlines in 2020 when a parking space sold for over $250,000).
Will your building be acquired under strata renewal laws?
Acquiring an entire building takes a developer time, effort and considerable resources – so we don’t expect to see an immediate wave of strata renewal acquisitions sweeping Potts Point.
However, we do believe more apartment blocks will become attractive to developers, and they will be doing the numbers to see which buildings are potential sites.
Some owners will be happy about this. Having your apartment acquired by a developer can lead to a considerable windfall, as you’re likely to receive well above market rates. Others won’t like it at all, preferring to remain where they are and valuing the home they know and love.
If you’d like to know more about the strata renewal laws and how they apply to Potts Point, contact my team today.