A Chinese Solution for Defective Apartment Buildings

Or, what getting tough on strata builders & developers really looks like ...

We’re starting to see tougher regulation of strata apartment building construction and development in some parts of Australia. But, it’s rather genteel compared to the approach they’re taking in China. Maybe, we could speed and toughen things up a bit …

[4:25 minutes estimated reading time, 822 words]

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Introduction

The new focii by regulators and others around Australia on strata apartment building defects is good news for strata stakeholders as we’re seeing things happen like:

• combustible cladding rectification projects with government funding in NSW and Victoria,

• the appointment of the NSW Building Commissioner to oversee construction quality for new buildings,

• changes to the laws about building defect claims to create new rights and allow longer time periods for claims in NSW,

• improvements to building documentation and certification regimes in a number of states,

• increasing calls to reintroduce home building insurance coverage for high rise strata buildings over 3 storeys,

• debates about introducing decennial insurance for defects in new strata buildings [which I’ll write about more in the future], and

• more research into strata building defects and their impacts on stakeholders.

But, it still isn’t enough as this recent editorial from the Sydney Morning Herald ‘Restoring confidence in apartment buildings is vital for city living’ explains and there’s a long way to go.

Plus, I also think we’re a bit too optimistic and ‘kumbaya’ about these changes being embraced by all strata apartment developers and builders despite the rhetoric; since it’s boom times for them with low supply, high demand, low-interest rates, and, high prices; all of which won’t last.

Maybe an even tougher approach is needed, and here’s an overseas example.

The Chinese approach to unfinished & defective strata buildings

China takes a different and more proactive approach than Australia on many things which isn’t surprising.

But, the way Chinese regulators in Kunming in southwestern China handled these defectively constructed and unfinished apartment buildings is on another level.

Kunming is one of those Chinese super cities that were built during the period of hyper urbanisation that occurred over the last 10-15 years and which PWC China calls the ‘Chinese Cities of Opportunity’.

This hyper development was undertaken by private developers who bought vacant or rural land from local governments, borrowed heavily, and built apartment buildings by the dozen or more quickly. They believed the massive growth in China’s wealth and urbanisation was never going to end and followed the infamous Hollywood mantra:

‘If you build it, they will come’

But, by 2018 it also became one of the famous ‘Ghost Cities’ in China where 50% or more of new apartments were empty, demand for them dried up, and, a [huge] housing bubble developed as this older ABC News report ‘China's eerie ghost cities a 'symptom' of the country's economic troubles and housing bubble’ explains.

So, things didn’t quite pan out as expected for developers, especially at the 15 tower complex called Sunshine City II in Kunming.

It appears the developer of Sunshine City II started building the complex in 2011 and got the concrete frames of the 15 buildings completed. But, by the end of 2013, they had run out of money and couldn’t get more funding, so building work stopped and never recommenced.

Last year, a new developer acquired the Sunshine City II site but because of defects in the existing apartment towers did not want to complete them as they were.

The solution was to demolish them [with local government approval] and start over.

So, that’s what happened in August 2021, with 14 of the 15 buildings coming down in a controlled blast and the remaining building that didn’t fall in the blast being demolished a few days later.

More details about this amazing building defects solution are reported by Vice in its article ‘China Blows Up 15 High-Rises Because Constructors Ran Out of Money to Finish Them’ and by China Media Grand Mishmash in its article ‘15 high-rise houses in Kunming China demolished by blasting in 45 seconds’.

Apparently, these are not the only unfinished buildings in Kunming with officials saying there are another 93 unfinished apartment building projects in the province that they hope to revive in 2022.

Conclusions

Although you’d say the same situation couldn’t happen in Australia or other western countries, it’s not impossible. After all, we’ve had housing bubbles before, unfinished apartment buildings have sat idle during economic downturns, developers have run out of money mid-construction, and builders have gone broke before finishing.

But, we don’t have regulators that will order strata buildings with defects to be demolished and rebuilt.

However, we sometimes just let that happen to strata buildings later, slowly, by default, or, by accident as in the cases of:

• Mascot Towers in Sydney which faces strata owner led demolition for redevelopment as it’s uneconomic to fix as this SBS Japan article ‘Owners in last-ditch attempt to recoup losses two years after Mascot Towers evacuation’ reminds us about, or even worse

• Champlain Towers South in Surfside, Florida which was allowed to structurally deteriorate, partially collapsed and was demolished as explained on Wikipedia.

I think I’d rather see defective strata building demolitions happen by choice at the beginning of a strata building’s life when the developer, builder, and financiers wear the loss rather than the strata owners.

So, maybe this time the Chinese have the right idea.

September 17, 2021

Francesco …