Car v. Apartment: Which one is better protected
What lessons can strata apartment developers learn from the car sector …
The sad reality is that you get better consumer protections buying a car than a strata apartment in Australia today. Whilst the two are not directly comparable, there are some stunning differences between them that I highlight in this article and the reasons why that could provide lessons for developers.
[13.50 minutes estimated reading time, 2706 words]
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Introduction
If you buy a new Hyundai Sonata in Australia today for the recommended retail price of $56,000, you’re going to get a pretty good consumer experience as far as faults, ongoing care, maintenance, and support are concerned. I just wish I could say the same for anyone buying a new strata apartment in Australia today for $560,000 [or more].
In this article, I’m comparing the two products from the consumer protection perspective and analysing some possible reasons for the differences.
And, even though you might say that a car and an apartment are not the same things, I’m not so sure there are so many differences in them that properly explain or excuse the massive disparity in the buying experience and protections for consumers.
Arguably, since buying an apartment is way more expensive, the buyer relies on it for housing and shelter, and [usually] the purchase involves long-term significant debt, it should be a better experience with more protections.
Consumer protections for the apartment buyer
If you buy a new strata apartment [off the plan or just finished] in most parts of Australia you will typically get some or all of the following consumer protections and benefits.
If the construction or delivery of the apartment is delayed too long [when buying off the plan] you can get your deposit [usually 10% of the price] back with any interest earned on it.
If the apartment is more than 5% smaller than you were promised [when buying off the plan] you can opt-out of the purchase or, possibly, negotiate a new price.
A folder with appliance and equipment warranties and other documents relating to the third party supplied things in your apartment.
The sale contract will have a short [6-12 week] defects liability period during which you can notify the developer of problems you’ve identified in the apartment [but usually not in the common areas] for them to fix.
The balance of the 2-year statutory warranties under the Home Building laws from when the strata building was finished for minor or non-structural defects in the building.
The balance of the 6-year statutory warranties under the Home Building laws from when the strata building was finished for major or structural defects in the building.
The right to take legal action against the builder within the 2 and 6 year warranty periods if they don’t fix any defects in a Court or Tribunal.
The right to take legal action against the builder, developer, or other people involved in the development and construction in negligence for up to 10 years if you can overcome the hurdles created by the High Court in Brookfield’s case [see my article ‘The High Court's Decision in Brookfield's Case’
If the strata building is smaller than 3 storeys, access to the builder’s home warranty insurance for the 2 and 6-year statutory warranties if the builder doesn’t fix defects, you have successfully sued them for the defects, and, the builder has become insolvent or vanished.
To make a complaint to the NSW Department of Fair Trading about the builder.
In NSW, the ability for your strata building to try to claim some of the 2% deposit bond lodged with the NSW Department of Fair Trading under the expert report processes under that scheme [even though no-one has yet done this as it’s a brand new process].
You’ll start receiving a quarterly levy notice from the strata building for your share of the buildings operating and long-term capital expenses.
As you can see from this list, after a very short time following purchase. most of the consumer protections for strata apartment buyers come from home building and strata laws with relatively small short time limits and requiring professional [expert and/or legal] action by the strata owner [usually in conjunction with the strata building] to enforce those rights.
Plus, when there’s a dispute between the strata apartment buyer and the developer or builder about the defect, there are no established and straightforward channels for the dispute, and [usually] the only way to resolve them is by legal action.
I’ve written about how to sue builders and developers for strata defects in the article ‘Suing for Strata Building Defects: A 2021 Update’ and about the history of strata defect protections in NSW in ‘The Saga of NSW Strata Defect Claims’ which explain these processes and issues in more detail.
And, as all strata stakeholders know, the experience of strata apartment buyers dealing with strata defects is generally very poor.
Consumer protection for the car buyer
If you buy a new Hyundai Sonata you will get some or all of the following consumer protections and benefits.
If you ordered the car in advance and it is not delivered on time or at all, you can get your deposit [usually $1,000 or $2,000].
Pre-delivery preparation of the new car immediately before collection by the dealer and a walkthrough of the car features, operating controls, and safety features.
A range of optional extra services for the new car that might enhance it, make it last longer, or improve your ownership experience; like mats, window tinting, paint protection, wheel and /or tyre warranties, etc.
A detailed manual for all parts, accessories, and features of the car that is also available online.
A service passport that sets out the details of the warranty and how to access support under the warranty [usually with a phone call].
A 5-year unlimited kilometre warranty covering all non-consumable parts of the car [and an 8 year/160,000 kilometre warranty on the lithium-ion battery if you buy a hybrid].
12 months free roadside support [extended for an additional 12 months each time you have the annual service performed at a Hyundai Service Centre] which includes things that are not car related like running out of fuel, locking your keys in the car and running out of fuel.
A free first service at the end of 1 month of 1,500 kilometres.
The option of buying a lifetime service plan and/or a pre-paid servicing plan that locks in future pricing.
10 years of free updates for satellite navigation systems.
To make a complaint about the dealer or Hyundai on any unresolved issued to the ACCC or the state Consumer Protection Agency
You’ll start having to paying for the running costs of the car.
As you can also see from this list, the Hyundai buyer not only has better [arguably] warranty protections but easier ways to access them and the ability to improve and enhance them.
There’s also a desire by the manufacturer to develop and maintain an ongoing relationship with the car buyer over their ownership of the vehicle. Even extending that to the next owner of the vehicle.
Reasons for the differences
This basic comparison reveals many differences between the position of new car buyers and apartment buyers. Why is that and what can be learned from the reasons for the differences?
A few reasons that might explain the differences include the following. I’m sure there are more. But as you’ll see from my quick consideration of them, they don’t always make sense or logically explain the differences.
Price and value
It’s not unusual for a strata apartment to cost 10, 20, or more times the price of a car. So, why are there higher quality outcomes in car manufacturing than apartment construction? You’d actually expect the opposite.
And, it’s unlikely that there’s more profit margin in selling Hyundai’s than 1 Bedroom apartments.
But Australian strata apartments do keep going up in value [generally over time along with the rest of the real estate market] which is different from most cars [but not rare, vintage or collectors cars]. So, it seems that despite everything that’s wrong with strata apartments they may be better stores of value than cars.
I’ll come back to that point at the end of this article as I suspect it’s a fundamental issue.
Life and use cycles
Obviously, a strata apartment will and should last longer than a car. But, they are also significantly more expensive to buy and for that reason, you’d expect them to be built to last longer.
Conversely, apartments don’t get the use and abuse that most cars do as they’re not driven around, bump into things or wear out like cars and car parts. So, maybe the low intensity and more passive use of apartments, means that car manufacturers have to build them better.
But, since a significant component of strata building defects are fundamental compliance matters [like fire safety, structure, etc] or waterproofing you’d expect that to be part of the basics.
Imagine if your 2-year-old car’s airbags didn’t work and it leaked inside every time it rained.
Buying cycles
Perhaps the different buying cycles between cars and strata apartments explain the difference?
Recent research suggests that the average duration of apartment ownership is 9.6 years whilst the average duration of car ownership is a little less than that at approximately 7.5 years based on the average age and proportions of cars in Australia. So, there’s not much difference there.
But, since used strata apartments stay in the sale pool for a long time whilst less and less used cars do over time, it’s very likely that more car buyers return to the same manufacturers than apartment buyers return to the same developers.
Plus, since apartment developers generally come and go [unlike car manufacturers who exist for many decades or longer] and are typically regionally based [unlike car manufacturers who are national or international] strata apartment buyers often can’t or don’t buy their second or third apartment from the same developer.
Manufacturing processes
Cars are built or assembled in high-tech factories [these days by computer controlled robots] following processes that have been refined over more than 100 years since the production line was invented by Henry Ford. The whole process is entirely controlled by the manufacturer and seller of the car. And, even when parts come from third parties, they are usually made to strict specifications and controls specifically for that manufacturer.
Strata apartments are built or assembled on-site in the outdoors by people using small and large tools. Typically, strata apartments are not built by the seller, and the builder subcontracts parts of the work to independent third parties. Parts used in the construction are mostly generic building materials that can be [and often are] swapped for replacements due to timing, cost, and supply issues.
These differences have a significant impact on the building/construction processes and the incentives and consequences for suppliers, sub-contractors, and people working on the car or strata apartment in relation to the quality, speed, consistency, etc.
Quality control
It’s trite to say that there are significant differences in quality control between the car manufacturing process to the strata apartment construction process.
The following two simple articles on each sector highlight them. Let’s just say they are light years apart.
So, it’s no wonder that the buyers’ experiences of the end product are widely different.
In a small, but surprisingly effective way, what the NSW Building Commissioner is doing by visiting almost completed strata building developments and identifying glaringly obvious workmanship, quality and compliance issues is a form of quality control. It’s just a bit sad that it has to be done by the government rather than by the makers of strata apartments.
Safety risks
Because a car can cause injuries and damage more readily and easily than a strata apartment, cars have been more heavily and aggressively regulated for safety and compliance.
Plus, because of litigation against car manufacturers over safety [see Ralph Nader in the 1960’s Unsafe at Any Speed], they had to significantly improve the design, engineering, quality, and safety of their cars.
This has never happened to strata apartments except perhaps until very recently over the concerns with combustible cladding and structural defects in a few major Australian strata buildings.
Imagine if a strata apartment developer had a recall over non-compliant features of their strata apartments [like fire damper, leaking windows, etc].
Volumes and values
Perhaps the different volumes of car sales and strata apartment sales explain the difference?
UNSW’s City Futures Centre research indicates that over the last 2 years an average of 141,000 new strata apartments were registered [and presumably sold] in Australia [see my article ‘7 + 3 Insights into 2020 Australian Strata Data’].
At the same time, Australian’s purchased over 1,060,000 million cars per year.
That’s a big difference in volumes at 7 times in favour of car manufacturers. But it would be the opposite on value since strata apartments are easily more than 7 times more valuable than the average or equivalent car [since the mean price of Australian strata apartments is close to $600,000].
So, we have car manufacturers making and selling 10 times more cars each year than new strata apartments for about 10% of the price.
Supplier organisation differences
We all know the names of car manufacturers and have our views about their products as to style, quality and value whether it’s a Hyundai, Ford, Mercedes, or Ferrari since they are global businesses that have been making and selling cars for many decades or longer. They also advertise heavily to promote their products, showcase them in motor racing and other car centered events, and sponsor sports teams.
Many car manufacturers are public companies and have significant capital resources and/or balance sheets. And, they maintain networks of dealers and support/service centres that give them a physical and ongoing presence.
But, apart from a few local or nationally recognised players on a few of these things, that’s not the same for strata apartment sellers [the developers] and/or the builders.
Generally [but not always on all matters] strata developers and builders:
are regional only operating in one city or locality,
are not public companies [and are often one off project corporations],
rely on project funding rather than balance sheet or cash reserves,
don’t promote themselves of their products [the strata apartments] generally,
don’t sell their products [the strata apartments] relying on real estate sales groups or project marketing firms instead,
don’t sponsor national or local sports, and
do not have a visible presence outside the development site for the development period.
There are some exceptions to these things and some developers and builders in Australia are well known. But, sadly, in many cases, some of those developers and builders are well known only because of their notoriety over defects.
Conclusions
This article is just the beginning of a comparative analysis that I’m going to continue to explore since I believe it may reveal some fundamentals about strata apartment development that might be the keys to better strata apartment housing and ownership experiences in the future.
There are some obvious differences between the organisations that make and sell cars and those that make and sell apartments and in the ways they do those things. But, why those differences exist and continue is hard to explain.
But, for now, I’d say that the strata apartment [and probably the whole housing] sector has relied on the consistent growth in capital values of Australian real estate to shortcut and underdeliver on building quality, buyer experience and service and consumer protections. Whilst the car sector has not had that safety net and so has had to constantly improve its products and the customer ownership experience.
After all, why should apartment buyers complain about all these things when their apartments will [on average over time] keep increasing in value?
Of course, that argument is wrong when it relates to housing as market price movements generally apply equally to all housing [when your apartment value goes up so does everyone else’s] and the strata apartment market does not properly price in building quality [since apartments in defective strata buildings sell for the same as comparable non-defective strata apartments].
Just imagine if buying a $500,000 apartment was as easy, enjoyable, and safe as buying a $50,000 car.
Surely, it’s possible.
August 09, 2021
Francesco ...