Waterproofing and Brisbane booms

The issue we raised last week rumbles on with experienced waterproofers claiming they are being driven out of the industry in NSW while engineers and builders line up to take sides.
We can see why there was a need to tighten the regulations but if it ends up with competent operators being forced out of the industry, leading to strata schemes not being able to fix their common property or, even worse, going to the "dark side" to get things done, what's really been gained?

And we take a look at Queensland property prices.  Why have they been soaring when most other states are falling?  Is there room for more growth?  Or has the bubble burst?  

And, while we're at it, we spell out what we'd be looking for in a Queensland apartment, with one eye on the state's cockamamie management contracts, if we were thinking of investing there. 

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Recorded by Jimmy Thomson & Sue Williams; Transcribed by Otter.ai.
Find out more about Sue Williams and Jimmy Thomson on their websites.

Transcript

Jimmy  00:00

Do you reckon everybody's back at work yet?

 Sue  00:01

I reckon most people are back at work now, but some people have taken the opportunity to go on holiday, because school holidays are almost over and I think now is a good time to go on holiday. So it's still a bit of a weird time. 

Jimmy  00:17

I was downtown yesterday (as were you). It seemed busy, but not horrendously so.

Sue  00:25

I think that the cost of living rises have affected people as well. I mean, they talked about December sales having been down; retail sales. But in November, sales were really up, because lots of people were going to those Black Friday sales. Now, I think credit cards are kind of biting from Christmas (and from those Black Friday sales), so people are watching their money a little bit more. So, you know, maybe people are trying to be a bit more careful. 

Jimmy  00:58

Not that you could tell from where we were yesterday afternoon, on the Queen Elizabeth. 

Sue  01:02

Yes, we went on the Queen Elizabeth.

Jimmy  01:04

I don't think there were many battlers on that, but lots of retirees, who've worked hard and saved hard.

Sue  01:13

And enjoying their retirement. We were invited for lunch, to see the ship and so we went along. And then there was a bit of a show; a circus show, who were Brisbane-based. They were incredible!

Jimmy  01:27

Spending the kids inheritance, I think that's called. We're going to be talking about property prices in Queensland, because that's a popular place for people to go, when they go on holiday. And we are going to be talking about the controversy that we seem to have helped to stir up. 

Sue  01:40

And for their sea-changes. You Jimmy; not me... You!

Jimmy  01:49

I helped to stir up a little bit, in the AFR and with columns last week, about the Design and Building Practitioners Act. There's a lot to talk about; we'd better get on with it. I'm Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  02:07

And I'm Sue Williams and I write about property for Domain. 

Jimmy  02:09

And this is the Flat Chat Wrap. 

[MUSIC]

Jimmy

It's interesting that it's called the Design and Building Practitioners Act... It's quite significant. This is the law that we've been talking about, that means that people who do significant work on buildings (including renovation and remediation work), have to have their work signed off by somebody who's qualified in design. That seems to have had the effect (and I think possibly, unintended effect), that a lot of very experienced and very competent operators are retiring; giving up...Just won't do it anymore. 

Sue  03:00

And why is that? 

Jimmy  03:02

The reason is because...I mean, let's get back to the basics. Waterproofing is such a significant part of apartment blocks especially and the knock-on effect from having bad waterproofing is horrendous on buildings. If it's not dealt with quickly and efficiently, it can actually (as we've seen in pictures that have come up from Victoria recently), rot a building from the inside, because of damp and stuff like that. It's difficult to detect, because once you've put the waterproofing down, and then put tiles on top of it, how do you know that the waterproofing in a specific area is defective? So the government (and this was driven largely by David Chandler, the Building Commissioner); the New South Wales Government brought in a law that said, if you want to do certain types of work, you have to have it signed off by a qualified designer of some sort; somebody who's certified in design. So that they can look at the work that you're doing and not only say that this work will be done properly and well, but assess whether it's going to have any knock-on effects on other parts of a building.

Sue  04:14

So that's good, isn't it? Because it's kind of like getting a second opinion from a doctor, or something.

Jimmy  04:18

It is. And when you think about it, you could for instance, go into a renovation on a bathroom, and make the bathroom absolutely sound, and the way the water runs off from the bathroom floor, might not affect the apartment that it's in, but it could affect the apartment downstairs, or next door. So this sensible (it sounds), restriction or regulation was brought in. And then we find that people who've been in the waterproofing business for literally decades, who have never had any complaints against them, are saying 'we can't work anymore, because we have to find somebody who is certified in this area. And that's a problem, because there's a shortage of people who are fully certified. And then we've got to add the price of that to the job that we're being asked to do and that can sometimes add 50% to the cost of the work.'

Sue  05:17

Can't they have some kind of certification process, to allow more people to become qualified and fast-track that qualification?

Jimmy  05:24

Well, that's the question. Because when I put that question to Fair Trading last week, the answer was basically "we're not making exclusions for waterproofing." And I mean, a waterproofer could go and spend (according to some of the reports that we've had back), two or three years, getting that qualification.

Sue  05:49

But waterproofing companies; don't they have certified waterproofers, who work for them?

Jimmy  05:53

They have certified waterproofers, but they're not certified designers. Hence, the focus on the word 'Design and Building Practitioner Act.' They've got to have some certification in building design. And we're not talking about interior design here; we're talking about somebody who can look at the way floors' fall and drains' drain,  and go "yes, this will all work fine." Architects have that and building engineers have that (usually), but people who have just done waterproofing, don't. It feels like there should be a middle-ground, where the government can say to somebody "okay, show us the experience you've had. Show us that you haven't had complaints that haven't been addressed and we will give you a temporary permit to continue doing this work."

Sue  06:50

All those companies could have a star system, in the same way that developers are now getting a star system, by the Building Commissioner's office. So if there's a five-star waterproofer, maybe they don't need a certification?

Jimmy  07:02

There has to be some way, that if the waterproofer's  misled the government and say that they've never had complaints, and they're going to do the job properly and if they're found out... it would have to be as critical as "okay, if you lie to us, you lose your licence completely; we'll knock you out of the game, totally." You've got to sign a thing saying 'I verify x, y and z.' If it's found out later that you're just a cowboy, then it's on your horse and get out of town. I think the guys' (and it's mainly men), who've been writing to me, would happily sign something like that, because they know that their work is good. 

Sue  07:43

I mean, long-term, wouldn't it be great for the government to actually employ a few certifiers and then they can be hired out, to check the work being done by other people. Maybe at a not a too-excessive rate. They may be on a salary from the government?

Jimmy  08:03

There's a culture thing here; a culture issue. Everybody (well, everybody on the good side of the building industry), is very much in favour of the changes David Chandler has done. It means that very few people are prepared to criticise him, because they don't want to be seen to be undermining the work that he's already done and continuing to do, and I understand that. There's also a culture of people in Fair Trading, looking at the last 20-30 years and going, we've been led up the garden path by builders and we've had enough. We're not allowing any leeway, because if you leave a tiny loophole for some of these people, they will just charge through it and the next thing you know, you've got another problem and people are pointing at the government and saying "why didn't you fix this? Why did you allow this to happen?" But I think one of the unintended consequences of this, is that the cowboys aren't going to go away. I think the good operators; the people who take pride in their work and are honest, are not going to go to buildings and say "look, let me do the work anyway. We'll just do this on the quiet," because it wouldn't get insurance if they did that. People with 40 years experience are saying "look, I've been doing this for 40 years, and I might as well retire now, because it's just too hard," and you've lost 40 years of experience, multiplied by the number of operators who are doing that. The cowboys will stick around and say to people "look, don't put this through the books. If you need this waterproofing done, we'll do it, but we'll do it on the quiet and that way, you don't need the certification. We can do it more cheaply. We can do it more efficiently. Don't tell your your insurance that it's getting done." I think that will happen. I mean, we know that the dodgy builders; the cowboys, will always find a way.

Sue  08:54

It's kind of like prohibition isn't it? 

Jimmy  10:04

Absolutely; it's so like that. You can stop people from doing certain things, but you can't stop them from wanting certain things. 

Sue  10:14

And finding a way to get them. 

Jimmy  10:16

And finding a way to get them; exactly. 

Sue  10:18

So we just need to make these processes 'watertight.' If we can make the process watertight; if the government can actually supply some kind of certification people, that would really be helpful. Some of these people who are saying they're going to leave the the industry, maybe they'd like to work as consultants for the government?

Jimmy  10:38

I think the first thing the government needs to do is to sit down with the building industry. And another thing I'm getting feedback on is people in the building industry saying "we have been trying to talk to Fair Trading for the past four years, and they won't talk to us. They won't sit down and listen to what we need, and what we want, and what we are prepared to provide."

Sue  11:01

That's absolutely ridiculous, isn't it?

Jimmy  11:02

It is, because if they're sitting making rules for builders without asking the builders... I mean, these Fair Trading people; they're doing the best they can. They're not builders; they're civil servants. They're looking at the Shergold report; they're looking at that, which came up with a lot of really good recommendations. They're looking at that and saying "we should implement this as best we can," which they should. But that doesn't mean that they have to take a hard line on everything. They have to be a bit smarter than that, I think and say "what is the effect on the industry? What is the effect on the buildings, if we drive the best operators out, along with some of the cowboys?" There's a few smart cowboys around, who are going to find ways around this. But as I said before, it's a culture thing and the building industry has not covered itself in glory in the past 30 years. And you tend to remember the bad things, rather than the good things.

Sue  11:56

It just makes absolute sense for anybody who's having laws passed about them, to actually be able to play a role, even if it's just a voice, and it's nothing binding. The builders and the developers and the engineers; they should be able to just have a say, and people should listen to them. And neither has Fair Trading. And it's interesting, because Fair Trading seems to have a huge number of people (like PR people), and you kind of think their budget for PR must be massive. If they could just cut a couple of those people and have an engineer in there...

Jimmy  12:41

Your friends in PR, or your ex-journalist, buddies? 

Sue  12:45

That's right. I mean, it's quite funny, because there's a real lack of journalists at the moment, because they've all gone into PR, often with the New South Wales Government, because it pays so incredibly well. It just doesn't make sense to me. The New South Wales Government should be providing good, decent services to people, rather than paying people to present those services in the best possible light. And that's the problem. 

Jimmy  13:09

Especially coming up to an election... Suddenly, everything is rosy in every government garden. It's interesting that the opposition hasn't jumped in on this. I mean, they seem to be very quiet on anything to do with Fair Trading or NCAT, or anything like that. The opportunities there to make political gain, are immense.

Sue  13:33

They're actually being a bit quiet on nearly everything, aren't they? I think they're waiting for the New South Wales Liberals to shoot themselves in the foot a bit more and then pick up the slack afterwards. Well, you know, we need a proper dynamic leadership and we need to see that from the opposition, as well.

Jimmy  13:53

I wrote a letter to Courtney Houssos, who is the Labor Party's Fair Trading spokesperson (and quite potentially, if Labor win, the next Fair Trading Minister). I got a standard 'she's very busy. Don't expect a reply,' email.

Sue  14:13

Really? That's shocking, isn't it? 

Jimmy  14:15

And I wrote a letter to David Chandler (who is on holiday at the moment), about this business with the certifiers. I got a response immediately. You talk about dynamism... Okay, the government's strutting around, posturing about all the fantastic things they're doing and the roads that they've built, and that's good... But the Labor Party is not engaging on this I think, because of that small-target policy. If you don't say anything, then you can't be criticised. Which I have to say, Labor Party people, is pretty useless for us, the people, who you expect to vote for you. When we come back, we're going to talk about escaping to Queensland. Is now a good time to buy a property in the Sunshine State? That's after this. 

[MUSIC]

Jimmy

I was on Queensland ABC Radio last week. It's funny, because they said "can you come on and talk about strata in Queensland?"  I said "well, it's not my area of expertise totally, but I do know a bit about it." And they said "oh, that's fine,"  and I sent them some notes. They came back and I said "how long have I got?" And they said, "you've got 10 minutes, coming up to the news."

Sue  15:38

That's a long time. 

Jimmy  15:40

Not when you're looking at strata in Queensland. The greatest thing you can ever do as a guest on a radio show, is bump the news back by a minute. 

Sue  15:54

Did you? 

Jimmy  15:55

Yes. They'll probably never asked me back on again. It was interesting, once I sat down and started writing my notes about buying in Queensland. You helped out with some figures about what the state of play is for apartments there.

Sue  16:16

Yes, it's been quite interesting. The new Domain price report has just come out and it shows that unit sale prices in Brisbane are up 2.9% year-on-year, whereas everywhere else (apart from Adelaide and Darwin), are down. So they're still going up. And unit rents; I mean, we all know rents are going up hugely everywhere... Apartment rents in Brisbane are up 14.3%, year-on-year. And 9.8% elsewhere in Queensland, which is incredible. Yes, up 4% in that quarter. It's quite incredible, really. So from that, do you deduce that it's a good time to invest in Queensland?

Jimmy  16:46

I think one of the things that you pointed out, was that while house rents have kind of stalled; they had been going up... They stalled in the December quarter and stayed pretty much the same, but unit rents kept going up. Hang on, I was going to ask you that! You've also been looking at the bigger economic picture, in terms of interest rates and inflation. So let's throw that in, before either of us decides to tell people whether to buy in Queensland, or not.

Sue  17:27

This week for Domain, I interviewed seven economists, about the economy. And that was the four chief economists at the four big banks, and then three independent economists, as well. It's interesting, because they're all pretty optimistic. The housing market has been hit by eight successive rises in the cash rate by the Reserve Bank of Australia. But most of them would agree, there's probably only about two more rate rises left and that's coming in this week (the February rate rise), and then there might be one in March, or April. After that, everyone reckons that inflation has already peaked, at 7.8%. So inflation will start falling as a result of all the rate rises, then the cash rate will be stabilised, until probably the end of the year. And then by the beginning of next year, 2024, we'll actually see the cash rate being brought down again. Most people think that the cash rate (the neutral cash rate), will be about between 3% and 3.5%. We're going to have to get used to it; that's going to be the regular cash rate from the RBA. But it's quite an optimistic outlook. And as well, employment will be a little bit softer; employment will go down, unemployment will rise just marginally and that's one of the most healthy factors you can have an economy... Lots of jobs in the job market.

Jimmy  18:57

So unemployment will go up, but job options will also rise?

Sue  19:03

Well, unemployment will just rise marginally, but there will be more employment, because of more migrant workers coming in, to fill gaps in the economy that we haven't been able to fill. You know, more migrants are coming in now and they'll be taking up positions.

Jimmy  19:17

More hairdressers. 

Sue  19:18

As waterproofers; baristas, probably. The outlook looks pretty good. And as well, they're saying investors are going to be starting to come back in the market now. They've been frightened off, because of the rising cash rate, but they're starting to come back. There's a bit less competition for apartments, even though the gap between apartment prices and house prices is still quite wide historically. This is a great time to invest in apartments, they say. And obviously in Queensland, the economy's doing really well and people are moving. They want a sea-change in Queensland; often from Sydney, or from Melbourne, particularly. They want to go to the Gold Coast or the Sunshine Coast, or Brisbane as well, because the city is improving incredibly, ahead of the games. There's lots more infrastructure; it's a lot more 'buzzie' than it ever used to be.

Jimmy  20:15

I turned my attention to the management rights issue in Queensland and I think for me, that would be the biggest barrier to ever wanting to invest there. I remember years and years ago, friends of ours looked at buying a place in Noosa and they were going to rent it out most of the time and use it as a kind of holiday bolthole type-thing. The economics of it just didn't work out, because the caretaker/manager of the place they were looking at ran the rental roll; took huge commissions... Nobody else could use another real estate agent to rent the property and when they added the fingers up together, they were going to make a considerable loss on the building. Now, a couple of things have changed since then... One is that caretaker/managers cannot get exclusive use of the rental roll. Oh, wow, so that's changed. That's a big change.  What they can do is be the only company that has a rental office in the building, but people can still go outside, to another local. So that's changed, and then Airbnb came in and the whole 'renting your holiday homes through a local real estate agent,' kind of went out the window. You know, people are putting their own properties on and hiring their own cleaners and all the rest of it. So that's changed that. What hasn't changed are these iniquitous, pre-sold, caretaker/management contracts. Some of them are up to 25-years, depending on what module you buy into. An accommodation module (which is the rented property); they can have a 25-year management rights' contract. 

Sue  21:38

That's abominable, isn't it?

Jimmy  21:43

Oh, it's disgusting. 

Sue  21:46

There's nowhere else in Australia that will allow that, is there?

Jimmy  21:53

No, it's illegal; specifically illegal elsewhere. Except, there are certain developers in the Northern Rivers area of New South Wales, who are going to their initial AGM's and they've pre-sold the management contracts on contingency. So they've said to the caretaker/manager "if we can get this through the first AGM, you need to give us $100,000, or whatever." They go to their first AGM, and they say "oh, these contracts, these are standard. These are standard everywhere." People have got friends on the other side of the border in Queensland, where it is standard. So they don't think twice about being presented with this contract, which ties them to ridiculous fees and ridiculous rises, and the fact that it can be sold from under them, without their permission. And a lot of these people might be homeowners, but they're kind of moving to the Northern Rivers as a sea-change and they have no idea how apartments work.  Getting back to Queensland... You've got this situation there. There's an excellent website (https://www.lookupstrata.com.au/)... Somebody wrote to them and said 'I'm really puzzled... I live in an accommodation module apartment block (which is the one with the 25 -year contract), and all but one of the other people are resident-owners; they're not letting their apartments out and it sounds like it was always pitched to resident-owners... Why would that be?' The person's written back and said "purely so that the developer could sell a 25-year contract. That's the only reason they would do that, because if they're looking at owner-occupiers, and they're pitching to downsizers, or whatever, then they are in the wrong module. But if they had the other module; the standard module, they could only sell a 10-year contract."

Sue  24:13

If they've got one person in there, who's an investor, they can do that.

Jimmy  24:17

It's SCA Queensland. Until recently, their members were helping strata caretaker/managers to change the module, so that they could change from a 10-year contract to a 25-year contract.

Sue  24:33

They're not now? 

Jimmy  24:34

Well, it's interesting, because a couple of years ago, they threatened to take me to the Press Council, because I said that strata managers in Queensland (the SCA), thought that the presale of management contracts was 'fine and dandy.' They wrote back and said 'we do not think this,' and I said 'are you against it?' And they said 'no, we don't have an opinion on it; we've never discussed it.' You think wow! You're either incredibly incompetent and bad at your jobs, or you're not being entirely honest here. It's the single biggest issue in strata in Queensland and you haven't even discussed it? Anyway, I didn't get taken to the Press Council. We had to put in a correction, saying that they had never said it was 'fine and dandy.' They now have a new [General Manager] in SCA Queensland, who is apparently appalled by the whole pre-sale of management contracts, so that could change a lot. If you've got the strata managers in Queensland telling the government "oh, by the way, this is corrupt and evil and wrong..." Not that I'm saying they've ever said that, because we can't assume that they've discussed it, but it seems like that's changing there. But how the government undoes that, I don't know. There's no pressure on them from anybody and there is pressure on them from the developers, who like the money that they're getting for nothing. And the banks like them, because the caretaker/managers have to come to them, to borrow the money. So if you've got the developers saying 'don't fix it, if it ain't broke,' even when it is quite clearly broken... The government has to have a special incentive to do that. So let's keep incentivizing them! 

Sue  26:25

Good idea!

Jimmy  26:26

All right, we've over-run. I've done it again. Get me on the subject of pre -sale of contracts and you could sit here all day. Thanks, Sue. Thanks for your insights. Did we decide whether people should invest? If you had a lazy $800,000 lying around, would you invest it in an apartment in Queensland right now?

Sue  26:48

I think I would, depending on which contracts were operating in a certain building. I'd look at those very, very closely and get a strata lawyer to check them for me. I think yes; I think Queensland is on a good path to growth and it's a great state.

Jimmy  27:03

So what you could do, is look for a building where their 10-year contract is about to expire, at which point the owners corporation (the owners in the building, so it's body corporate in Queensland); they can decide okay, we will now choose our caretaker/manager, and the terms under which that contract operates. So that's it; you're looking for a building that's about eight-years old, a standard module; contracts about to expire and just make sure your committee doesn't get hijacked by the friends of a caretaker/manager, as happened to a building we heard about recently, where for the past five years, the committee has been saying 'when the contract expires, we'll get our own people in.' And then suddenly, there was an election, the committee changed and they quietly went and got a consultant to find another contractor that they could sell the contract to. Thanks, Sue and thank you all for listening. We will talk to you again soon.

Sue  28:06

Bye.

Jimmy  28:08

Thanks for listening to the Flat Chat Wrap podcast. You'll find links to the stories and other references on our website, flatchat.com.au. And if you haven't already done so, you can subscribe to this podcast completely free, on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favourite podcatcher. Just search for Flat Chat Wrap with a w, click on 'subscribe,' and you'll get this podcast every week, without even trying. Thanks again. Talk to you again next week.