10 Predictions for Aussie Strata in 2022
What will and won't happen in this upcoming year for strata stakeholders ...
I’m no Nostradamus. But think I can make some pretty accurate predictions about the trends that will impact Australian strata title experiences over 2022. So, what will and won’t happen over the next 12 months?
[8.00 minutes estimated reading time, 1566 words]
Subscribe to the paid version now
Introduction
As another year begins in strataland, I’m wondering what it will bring for strata stakeholders around Australia. Will it be the same, better, or worse than 2021, and in what ways?
Even though I’m not Nostradamus, here are 10 predictions of strata trends that I’m confident will characterise the next 12 months.
1. More Covid challenges
Covid issues will continue to trouble strata residents, committees, managers, suppliers, and the public at large.
During 2021 we thought Covid issues were settling down and we were getting the challenges under control as things started to return to normal. But the year ended with record case numbers in most states and this year has only seen those numbers grow as the Omicron variant rages through Australia [and the world].
Since Australian [and most other countries] government policies now seem to be shifting towards ‘living with the virus’ that means there will be more virus infections in for more people in more locations [including in strata buildings and the offices and depots of organisations working for strata buildings]. So, strata stakeholders will face a new and different kind of Covid shutdown that results from randomly occurring infection hotspots.
Plus, since the new approach to Covid involves ‘personal responsibility’; that will apply to strata buildings [like every other person, business and organisation] requiring them to make their own decisions about managing risk without official mandates or rules to fall back on.
And, based on last year, I don’t expect the federal government or the various state government departments responsible for the strata sector to provide much useful guidance specifically aimed at strata buildings, committees, owners, residents and managers.
2. Interest rate increases
Interest rate rises are predicted this year [and next] and will affect strata building cashflows.
As interest rates are slowly forced upwards due to Reserve Bank macro-economic policy, there will be a squeeze [for the first time in a long time] on borrowing ability, debt financing costs and property owner and investor cash flows. Coupled with inflation that is a double whammy on property ownership costs for owner-occupiers and net returns for property investors.
Where those owners and investors are in strata buildings, their financial position will affect their strata levy payments [along with everything else] causing gradual slowdowns in strata building cash-flows.
Those trends may only start later in 2022 but will be the beginning of a more serious cash flow squeeze in 2023 and beyond for strata buildings, committees and managers.
3. A NSW strata law reforms bust
NSW will create a lot of empty buzz over its proposed and actual strata law changes, but no structured strata law reforms will take place there.
There will be a lot of words, discussion papers, submissions, consultations, meetings, seminars, press releases, draft bills, committees, analysis, articles and more about the suggestions and ideas for changes to NSW strata laws that will probably end up being a bit of a waste most strata stakeholder’s time [me included].
But, given the history of past strata law reforms programmes that took 3-5 years, there’s still a long way to go and much of the best commentary and analysis from the strata sector gets ignored by the government.
5. Building defects continue
Building defects issues will continue and reform proposals will go nowhere in 2022.
That’s despite things that are occurring around Australia like building bonds, cladding replacement programs, class actions, new NSW civil rights laws, building commissioner’s, decennial insurance ideas, building defect litigation, etc, etc, etc.
New buildings will still have defects when completed and strata owners’ rights won’t change; leaving them with the same challenges to get the defects fixed that I’ve written about so much in 2021.
No new insurance protections, no easier litigation and no general improvement in building quality for most strata buildings.
So, apart from a few publicised instances where structural defect issues get caught just before completion and some sweetheart deals are done to monitor them over 10 years or more, everyone is left with the same old problems.
6. Pets still under fire in strata buildings
Pets in strata buildings will continue to face challenges as strata buildings, committees and managers try to avoid the inevitable. And, Courts, Tribunals and legislators will keep overturning decisions stopping pets or trying to make approval and ownership more difficult.
Despite a few years of strata law reforms around Australia and clear indications from Courts that strata buildings have to make decisions about pets in their building based on actual problem issues and individually for each pet, as strata buildings, committees, and, managers keep trying to find or create impediments for pet owners and residents and introduce approval hurdles like bonds, trials, etc.
So, expect more Court rulings in favour of pet owners and state governments legislating to preserve or enhance pet rights.
7. Telecommunication messiness
The NBN rollout will create a few challenges for strata buildings and strata apartment residents as they finally have to transition their telecoms from old systems onto an NBN solution.
After more than 11 years, the NBN rollout is getting close to being completed and NBN Co says it will be finished in 2022.
That means the old copper network for phone and DSL data [hello 4 Mbps downloads] will be shut off everywhere this year and for the many strata buildings and strata owners who haven’t done anything to transition their services, there might be a telecoms work urgency and rush as they find their lift, fire, security, access control, CCTV and other systems stop working and need NBN based or alternative connections solutions.
Plus, strata owners and residents will need to shift their home and business connections to something else.
Given the wide variety or NBN services and options, how they vary form local area to area and from building to building, and, the confusion most people experience with NBN; expect a lot of confusion, delay and frustration over this basic utility.
7. Say hello to more online and remote activities
Online meetings and remote work will continue through the strata sector as the habit develops more strongly and random Covid events affect all strata stakeholders.
I think it’s fair to say these two changes that accelerated dramatically in 2020 and 2021 are here to stay. Nuff said!
8. A two speed strata management sector
The strata management sector will continue to bifurcate away from the medium-sized strata management business.
That will happen as:
larger strata manager businesses keep acquiring small to medium-sized businesses to grow scale and [maybe] margin, and
small new strata management start-up businesses emerge as strata managers leave their employment or enter the sector and start micro business relying on their reputations, connections and some kind of personal service based value add offering,
squeezing out the middle who cannot easily compete with the resources and scale of the large organisations and the service offering of the start-ups.
The problem with this trend is that it leads to polarisation of the strata management sector with few incentives for the largest business to innovate [instead of growing revenues by acquisition rather than marketing and margin increases] and new micro-businesses can’t afford to innovate or sustain innovations as they inevitably grow into small businesses due to their [at least initially] higher service levels.
9. Strata management fees will continue to contain surprises
Strata management base fees will not change much in 2022 and price competition on base management fees between strata management businesses will continue. But, charges extra work [the dreaded Schedule B or time charges] and third party earnings [like commissions, referral fees, etc] strata managers will continue and keep increasing to compensate for that.
Whilst the total cost of strata management services to strata buildings is ultimately whatever it is regardless of how it is split between base, extra and third party charges, the problem with this shift to more opaque charges is that tends to stifle price/service model innovation or variety and strata buildings, committees and strata owners keep getting surprised by the actual charges they incur versus what they expected for strata management services
10. Strata levies will increase ahead of inflation.
The last 25 years have been characterised by very low Inflation levels in Australia. But, it’s pretty clear that that is changing and will continue to change as the world experience inflation again.
The strata sector will not be immune to those changes which will increase the cost of running strata buildings and, consequently, strata levies paid by strata owners.
But there are a few factors that will cause strata building operating costs to go even higher including the following.
The work from home and lifestyle changes resulting from Covid mean that strata buildings are demanding and using more services than ever before.
Strata service providers need to make up for their own increased costs of operating post-Covid and supply costs for their staff, equipment and materials; so their charges will rise.
Strata service providers need to make up for lost profits over 2020-2021.
Conclusions
2022 is likely to be a year of some disappointments as necessary and long overdue things don’t happen, the continuation of some innovations and other positive changes in the strata sector, and, where some stuff just stays the same.
So, let’s check-in again in December to see if I was right or wrong.
January 20, 2022
Francesco ...