Buying a home
Strata titles and levies – how do they work?
5 min read
When looking for a property to buy, you may come across some that are part of a strata title. At first glance, they can seem a bit confusing, so we’ve broken it all down for you.
A strata title is a form of ownership that gives the buyer ownership of a property; usually an apartment, unit, townhouse, or sub-divided properties that share a common area; as well as shared ownership of the surrounding ‘common property’. This shared ownership is split between all the property owners under the strata title. The common property is usually managed by the Owners Corporation (also known as the Body Corporate) which is made up of all the property owners.
If you own a property in a strata title you’ll need to pay levies that contribute to covering the costs of things like insurance, repairs, and maintenance. The rules and regulations vary from state to state, but generally, the levies you pay go towards two funds, the administration fund, and the sinking fund.
The strata’s administrative fund is designed to cover budgeted maintenance, repairs, and insurance of the common areas– think gardening, cleaning, and building insurance. The administrative fund is associated with the day to day running of the property and is more of a short-term expenses fund.
A strata’s sinking fund on the other hand covers the cost of emergency repairs and longer term work required – think repairing the pool, replacing tiles or fencing, and painting the building. Like the administration fund, the sinking fund only covers costs for the common areas of the property.
In some situations if an unexpected cost arises that the appropriate fund can’t cover the Owners Corporation can approve a special levy to cover the expense.
Strata titled properties are often cheaper than freestanding homes because multiple strata lots can be sold from the one piece of land, so they can be sold at a lower price than a stand-alone home. This could be handy if you want to get into the property market sooner or you have your heart set on living in a more expensive location like in an inner-city suburb. Because of their lower cost, strata title properties can also be an affordable first investment property, and the rent you charge can cover the cost of the strata levies. If you’re thinking of purchasing an investment property check out these 7 handy tips to help you get started.
Because all the common areas of the property are maintained through the Owners Corporation, you have less to worry about when it comes to your property’s upkeep.
Maintenance and repair costs that would normally be yours to bear alone in a stand-alone property are split between all the owners in a strata title via the administration and sinking funds.
Owning a strata title property means that your neighbours are very close by. This isn’t such a bad thing if they’re nice and quiet, but if you get a loud bunch you may have to look into some sound proofing. And if all the properties in your strata title have residents in them, finding a parking spot could also be an issue. It might be worth finding out if you have assigned parking spaces, and or safe and convenient off-street parking.
Often strata titles will have restrictions when it comes to making changes to the exterior of the property. So, if you want to do some renovating, you’ll need to get it approved by the Owners Corporation first.
All decisions for the strata title have to be agreed on by the Owners Corporation, and people don’t always agree that easily. Instead of being able to immediately switch gardeners if you’re not happy with your current one, you’ll have to get the Owners Corporation on board first, and if you’re not in the majority, you could end up with a decision you’re not happy with.
Strata titles aren’t for everybody, so it’s important to make sure you know what you’re getting into and that you’re happy. Here are a few things you should consider:
The first thing to check out is how much the strata levies are, and whether you’ll be able to afford them. Strata fees are an indicator of the level of maintenance required throughout the year (gardening, cleaning of common areas, general maintenance, waste management). It’s important to account for the strata levies in your ongoing expenditures so you can make sure there is room in your budget for the added expense.
Your strata levies could be higher if the property you’re thinking of purchasing is in a strata title with a swimming pool, gym, or other amenities. All of these things attract a cost in order to keep them maintained and functioning, so the strata levies will need to accommodate this in order to cover the cost.
It’s a good idea to know ahead of time what the rules for the common areas and facilities are. Sometimes strata titles have restrictions around things like where you or your guests can park, or the types of renovations/alterations you can make to your property.
As buildings get older, they require more repairs and maintenance. If you’re looking to purchase an older property in a strata title, keep in mind that your strata levies may be higher to account for the repairs and maintenance.
Owning a property in a strata title comes with its pros and cons, and they aren’t for everyone. It’s important to weigh up everything before making the decision to purchase a property – even one that’s in a strata title. If you think you’ve found the property that’s right for you, and believe you’ve met our eligibility criteria, why not take a look at Tic:Toc’s rates? You can also use our borrowing calculator to get an idea of how much you can borrow, and our repayments calculator to help work out what your repayments will be.