Buying an apartment in New Zealand can seem more affordable than a standalone house, but it’s crucial to understand the hidden costs beyond the mortgage. These expenses, often overlooked, can significantly impact your budget and overall ownership experience. This article dives deep into these hidden costs, offering specific budgeting tips tailored for Kiwi apartment buyers.
Body Corporate Levies: The Regular Drain on Your Wallet
One of the most significant ongoing costs of apartment ownership is the body corporate levy. This fee covers the maintenance, insurance, and administration of the building and common areas. Unlike rates on standalone houses, which are generally fixed for a rating year, body corporate levies can fluctuate and often increase over time. Understanding what your levies cover is paramount.
Components of Body Corporate Levies: Levies typically comprise several components: operational expenses (day-to-day maintenance, cleaning, gardening), insurance premiums (building insurance is mandatory, and contents insurance is your responsibility), and a contribution to the long-term maintenance fund (also known as a ‘sinking fund’ or ‘capital works fund’). Special levies can also be raised unexpectedly to cover significant, unforeseen expenses (more on that later).
Typical Costs: Body corporate levies vary widely depending on the size of the building, the amenities offered (e.g., swimming pool, gym, lift), the age of the building, and its location. For example, a modern apartment in Auckland City Centre might have levies ranging from $4,000 to $10,000+ per year, while a smaller, older apartment in a regional town might have levies closer to $2,000-$4,000. Always carefully review the body corporate disclosure statement before purchasing a property to understand the current levies and any planned increases.
Budgeting Tip: Don’t just consider the current levy amount. Ask for historical levy data to see how levies have changed over the past 3-5 years. Check the long-term maintenance plan to identify any upcoming major works that could lead to increased levies. Factor in a conservative annual increase of at least 3-5% to your estimated levy costs when budgeting.
Long-Term Maintenance Fund (Sinking Fund): Planning for the Future
The long-term maintenance fund is designed to cover major repairs and replacements to the building over time, such as replacing the roof, repainting the exterior, or upgrading lifts. A well-funded maintenance fund is a sign of a well-managed building, as it reduces the risk of special levies. However, a poorly funded fund can be a red flag.
Assessing the Adequacy of the Fund: Review the long-term maintenance plan (also known as a “10-year plan”) carefully. This document should outline the planned maintenance works over the next decade and the expected costs. Check if the current balance of the fund is sufficient to cover these expenses. A common rule of thumb is to ensure the fund should ideally cover at least 70% of the predicted costs for the next 10-year period.
Red Flags: Be wary if the long-term maintenance plan is outdated, vague, or doesn’t adequately address known maintenance issues. Also, be cautious if the current balance of the fund is low relative to the planned expenses or if the fund has a history of being used for operational expenses instead of long-term maintenance.
Budgeting Tip: If the long-term maintenance fund appears underfunded, factor in the potential for special levies or significant levy increases in the future. Speak to a building surveyor for an independent assessment of the building’s condition and potential maintenance needs.
Special Levies: The Unexpected Expense
Special levies are one-off charges imposed on apartment owners to cover unexpected or urgent expenses that are not covered by the operational budget or the long-term maintenance fund. These can be substantial and can catch owners off guard. Possible scenarios include: emergency repairs after a natural disaster, major structural defects discovered during a routine inspection, or a legal dispute involving the body corporate.
Examples of Special Levies: Imagine a scenario where the building’s roof is damaged in a storm, and the insurance policy doesn’t cover the full cost of repairs. The body corporate might issue a special levy to cover the shortfall. Another example is the discovery of leaky building syndrome, which can require costly remediation work.
Minimizing the Risk: While you can’t completely eliminate the risk of special levies, you can take steps to minimize it. Choose a well-managed building with a proactive body corporate, a comprehensive long-term maintenance plan, and a healthy maintenance fund. Review the body corporate meeting minutes to identify any potential issues or upcoming expenses. You can also ask for detailed building inspection report.
Budgeting Tip: While it’s impossible to predict special levies with certainty, it’s prudent to have an emergency fund that can cover unexpected expenses. As a rule include 1-2% of apartment’s value as a security for special levies and other urgent building related issues.
Insurance: More Than Just Building Cover
While the body corporate is responsible for insuring the building, you’re responsible for insuring your contents and potentially for liability within your apartment. It is important to understand these responsibilities.
Building Insurance: The body corporate’s building insurance covers the structure of the building and common areas. Review the policy carefully to understand the coverage limits, excess, and exclusions. Pay attention to what is covered for natural disasters.
Contents Insurance: Your contents insurance covers your personal belongings inside your apartment, such as furniture, electronics, and clothing. A common mistake is underestimating the value of your contents. Take the time to create an inventory of your belongings and estimate their replacement cost.
Liability Insurance: Consider liability insurance to protect yourself if someone is injured in your apartment. This can cover legal costs and damages if you’re found liable.
Budgeting Tip: Shop around for insurance quotes to ensure you’re getting the best value for your money. Consider increasing your excess to lower your premiums. Factor in annual increases to your insurance premiums when budgeting.
Council Rates: Your Share of City Services
Apartment owners are also responsible for paying council rates, just like owners of standalone houses. The rates cover the cost of local services, such as road maintenance, rubbish collection, and water and sewerage services. The amount of rates you pay will depend on the value of your property and the services provided by your local council.
Understanding Rating Valuations: Council rates are based on the property’s rating valuation (RV), which is an estimate of the property’s market value. RVs are typically updated every three years. Check the council’s website for information on how RVs are calculated.
Rates Rebates: Depending on your income and circumstances, you may be eligible for a rates rebate. Check with your local council to see if you qualify.
Budgeting Tip: Council rates are typically paid in quarterly or annual installments. Factor rates into your monthly budget. Note that rates are subject to annual increases due to inflation and increased service demands. Factor in a conservative annual increase of at least 3-5% to your rates estimate when budgeting.
Utilities: Individual vs. Shared Costs
The way utilities are billed in apartments can vary. Some apartments have individual meters for each unit, while others have a shared meter for the entire building.
Individual Metering: If your apartment has its own meter, you’ll be billed directly for your usage of electricity, gas, and water. This gives you control over your consumption and costs.
Shared Metering: If the building has shared meters, the utility costs are typically included in the body corporate levies. This can make it difficult to track your individual consumption. Be aware that shared metering can lead to higher utility costs if some residents are wasteful.
Budgeting Tip: If your apartment has individual meters, monitor your utility consumption closely and take steps to conserve energy and water. If utilities are included in your body corporate levies, consider advocating for individual metering to encourage more efficient consumption habits.
Parking: A Valuable Commodity
Parking can be a significant cost, especially in urban areas. If your apartment doesn’t come with a parking space, you may need to rent or purchase one separately. The cost of parking can vary widely depending on location and demand.
Renting a Parking Space: Renting a parking space in a city like Auckland can easily cost $50-$100+ per week. Factor this cost into your budget if you need to rent parking.
Purchasing a Parking Space: Purchasing a parking space can be a significant investment, potentially costing tens of thousands of dollars depending on the location. Consider the long-term costs and benefits of purchasing versus renting parking before making a decision.
Budgeting Tip: If you don’t need a parking space, consider renting it out to generate income. Research parking options in your area and factor in the cost of parking when budgeting for transportation expenses.
Building Warrant of Fitness (BWoF): Compliance and Costs
The Building Warrant of Fitness (BWoF) is a legally required document that certifies that a building’s safety systems are up to code. This is a annual procedure. Your body corporate is responsible for ensuring that the building has a valid BWoF.
BWoF Costs: The costs associated with obtaining and maintaining a BWoF can include inspections, maintenance, and repairs to fire protection systems, emergency lighting, and other safety features. These costs are typically covered by the body corporate levies, however it may also require extra attention, and therefore increase to levies.
Impact on Levies: If the building has a history of BWoF compliance issues, this could indicate that the building is not properly maintained and you should check the reason for not getting BWoF earlier. Also this may also result in increased body corporate levies to cover the cost of necessary repairs and upgrades.
Budgeting Tip: Review the building’s BWoF history to identify any recurring compliance issues. Ask the body corporate about the costs associated with maintaining the BWoF and if any upcoming upgrades are planned. Talk to other owners to understand problems during the process. Always choose a body corporate that handles these processes with full care and in timely fashion.
Management Fees and Professional Services
Body corporate levies often include management fees paid to a professional body corporate management company. You should also consider the cost of other professional services, such as legal advice, accounting services, and building inspections.
Management Fees: Body corporate management companies provide administrative services, such as collecting levies, managing finances, arranging repairs, and organizing meetings. Fees can vary depending on the size of the building and the scope of services.
Other Professional Services: The body corporate may need to engage legal counsel to resolve disputes or accounting professionals to prepare annual financial statements. Building inspections may be required to identify potential maintenance issues.
Budgeting Tip: Compare management fees from different body corporate management companies before making a decision. Review the body corporate’s financial statements to understand the costs of other professional services. Factor these costs into your overall budget for apartment ownership.
Common Area Maintenance and Upgrades
Your body corporate levies cover the cost of maintaining common areas, such as hallways, gardens, swimming pools, gyms, and lifts as these all need to be maintained to prevent any issues.
Regular Maintenance: Regular maintenance includes cleaning, landscaping, and routine repairs. A well-maintained common area enhances the building’s appearance and value.
Planned Upgrades: Over time, common areas may need to be upgraded or renovated. This could include repainting, replacing carpets, or installing new equipment in the gym. These upgrades can be costly and may require a special levy.
Budgeting Tip: Review the body corporate’s long-term maintenance plan to identify any planned upgrades to common areas. Inquire about the expected cost of these upgrades and how they will be funded. If the body corporate is not active in maintanence you should always remember to make an enquiry as that job may be left pending depending on the property.
Hidden Costs Summary: Building Your Budget
You need to factor in, at a minimum, these often overlooked costs:
- Body Corporate Levies: Include a buffer for potential increases.
- Long-Term Maintenance Fund: Understand how a low or underfunded one could impact future expenditures.
- Special Levies: Have an emergency fund.
- Insurance: Building, contents, and liability coverage.
- Council Rates: Factor in increases.
- Utilities: Understand individual vs. shared costs.
- Parking: If applicable; factor in renting or purchasing.
- BWoF: Compliance history and potential costs.
- Management Fees: What you pay for professional administration.
- Common Area Maintenance: Include potential upgrades.
Case Studies: Real-World Examples
Case Study 1: Sarah bought a one-bedroom apartment in Auckland CBD. The initial body corporate levy was $4,500 per year. However, after two years, a special levy of $3,000 was imposed to cover unexpected repairs to the building’s facade. Sarah hadn’t budgeted for this and had to dip into her savings.
Case Study 2: John bought an apartment with a well-funded long-term maintenance fund. When the building’s roof needed replacing, the body corporate was able to cover the entire cost from the fund, without imposing a special levy. John benefited from proactive planning.
These case studies further highlight the importance of a thorough due diligence process and careful financial management.
Mitigating Risks Through Due Diligence: Questions to Ask
Before committing to an apartment purchase, equip yourself with knowledge. Asking pointed questions can reveal potential financial pitfalls.
Targeted Questions:
- What is the current balance of the long-term maintenance fund?
- Can I review the last 3-5 years of body corporate meeting minutes?
- What are upcoming maintenance plans?
- Are there any known building defects or outstanding maintenance issues?
The current insurance coverage and building valuations are aligned with standards.
FAQ Section
Q: What happens if I can’t afford to pay the body corporate levy?
A: If you fail to pay your body corporate levy, the body corporate can take legal action to recover the debt. This could include charging late payment fees, taking you to court, or even forcing the sale of your apartment to recover the outstanding levies. It’s crucial to communicate with the body corporate if you’re struggling to pay and explore possible payment plans.
Q: How do I know if a body corporate is well-managed?
A: A well-managed body corporate will have a proactive approach to maintenance, a comprehensive long-term maintenance plan, a healthy maintenance fund, and transparent communication with owners. You should see evidence of regular meetings, well-documented decisions, and prompt responses to owner inquiries. It is recommended for people when choosing an apartment to see and note what are the management styles.
Q: Can I dispute a special levy?
A: You can challenge a special levy if you believe it’s unreasonable or unfair. However, you’ll need to have valid grounds for your challenge, such as evidence that the levy was not properly approved, the expense is not a legitimate body corporate expense, or the levy is disproportionate to the owners’ share. Consult with a lawyer for advice on your specific situation.
Q: Are new apartments safer that old apartments when it comes to building standard compliance?
A: While new apartments often benefit from modern building standards and potentially fewer immediate maintenance needs, they are by no means immune to issues. Construction defects can occur in new buildings, and new technologies or designs can sometimes present unforeseen challenges. Old apartments may have undergone renovations and upgrades, and their long-term performance history might offer valuable insights. This needs to be assessed on a case-by-case basis with building inspection as a key factor.
Q: Will the bank always approve the mortgage even when buying a leaky apartment?
A: No, banks are increasingly cautious about lending on properties with known or suspected weathertightness issues (leaky buildings). If a property has a history of leaks or shows signs of moisture damage, the bank may require a comprehensive building inspection report before approving a mortgage. In more severe cases and depending on lender’s regulations, they may decline the loan altogether if the risks are deemed too high. Honesty and transparency of the seller may increase the chances; however the banks would decide based on their lending criteria.
Q: Should I choose an apartment that has a lift?
A: The needs would depend on your circumstances. While lifts offer convenience, especially for those with mobility issues or families with young children, apartments with lifts typically have higher body corporate levies due to maintenance and energy costs. You could check options such as stairs and lifts if available
Q: Does it matter buying an apartment on the top floor of a building?
A: Buying an apartment on the top floor can matter for several reasons. Top-floor units often offer better views and less noise from neighbors above. However, they might also be more exposed to weather elements, potentially leading to higher heating/cooling costs and a greater risk of roof leaks. Building maintenance and structural issues may be more pronounced with a top-floor apartment. Always consider the pros and cons, inspect carefully, and seek expert advice before making a decision.
References
- Unit Titles Act 2010, New Zealand Legislation.
- Weathertight Homes Resolution Services Act 2006.
- Auckland Council Rating Information Database.
- Building Act 2004.
Don’t let hidden apartment ownership costs take you by surprise. Equip yourself with knowledge, ask the right questions, and proactively budget for these expenses. By doing so, you can enjoy the benefits of apartment living without the financial stress. Start your due diligence today and secure your financial future!
