The past few years have been trying times for the NSW construction and development industry. High-profile evacuations shone a light on major building defects in apartment complexes and sparked a move by the NSW Government to create a developer ratings tool.
On Christmas Eve 2018, 3,000 residents were evacuated from the 36-storey Opal Tower in Sydney’s Olympic Park due to cracks in the building and reports of movement. Less than six months later, the 132-apartment Mascot Towers (located just south of the CBD) was evacuated when cracks also appeared in that building. While Opal Towers residents have returned to their homes, Mascot Towers remains uninhabitable.
These high-profile evacuations drew widespread attention to the building defect crisis that had plagued the apartment sector for many years. According to a study by the UNSW City Futures Research Centre, between 2007 and 2017, at least one in four apartment blocks in Sydney had one or more defects, including cracking, fire safety concerns such as non-compliant cladding, or water ingress and flooding issues. The report revealed 51 per cent of the buildings sampled had at least one type of building defect, 28 per cent had at least three types of defects and 12 per cent had more than 10 different defect types.
In 2019, the NSW Government launched an inquiry into the regulation of building standards, building quality and building disputes. New legislation followed (in effect from 10 June 2020) which aims to protect purchasers as well as change the culture and capability of the NSW building industry. The legislation not only gives authority to the NSW Building Commissioner to inspect and order the correction of “serious defects” in residential apartment buildings but also establishes a developer rating system, which ultimately allows the property developers, builders and designers to be held accountable.
Apartment ratings tool
The Independent Construction Industry Rating Tool (iCIRT) uses a five-star system to rate developers on their apartment build.
Created and managed by data company Equifax, iCIRT uses a wide range of publicly available data to create a risk profile for any planned project, based on the behaviour of the companies behind it. By pulling together all key data endorsed by NSW Fair Trading to reflect each developer’s character, capability, and capital, the tool assesses a property developer by considering its credit rating, the relationships between development counterparties, the entity’s history in corporate dealings, and its nominated directors.
Each developer is then assigned a rating on a five-star scale. From that rating, property buyers will have a clearer picture of the developers’ trustworthiness and their capabilities to construct a regulation-compliant and safe building, as well as their ability to fix issues and defects (if any) in the future. To be considered “trustworthy” the developer must meet the minimum benchmark average of three out of five stars. The independent assessment allows buyers to more easily find a trusted, rated developer who has shown they have the capital, experience and capability to deliver a quality apartment.
The tool, which became available in March 2022, can help buyers decide whether to purchase an apartment built by a particular developer or builder across NSW. As of April 2022, 75 builders and developers were going through the certification process, with a further 100 construction companies in line to undertake certification.
At this time, NSW is the only jurisdiction to use such a rating tool. The iCIRT aims to provide national and globally-facing capability records, with Equifax noting plans to expand from the early works in NSW to other states and territories.
What landlords need to know
In NSW, landlords should use the new rating tool to make informed decisions about purchasing apartments in complexes.
In other states, landlords looking to invest in an apartment in a complex should always perform due diligence and fully assess the prospective property (including any warranties):
- Conduct a body corporate records search and look at the value and forecast of the sinking fund, as well as completed and upcoming maintenance works.
- Commission an independent building inspection and property survey.
- Check if the builders’ warranty is still valid.
- Consider the construction materials used.
- Investigate who developed and built the apartments.
- Confirm what insurance the body corporate has.
- Investigate the developer and builder (if one has been appointed).
- Visit the developer’s and builder’s existing projects.
- Have a building inspection completed before signing-off.
- Check the clauses in the contract relating to building defects.
Buyers should also familiarise themselves with the legislation and regulations relating to apartment complexes, including builders’ warranty.
It is important to understand that landlord insurance policies – and most other building covers, including strata insurance – generally exclude building defects and faulty workmanship. This means that claims for damage or losses caused by these issues are not covered. At EBM RentCover we evaluate claims on a case-by-case basis. So, if you want to chat about your circumstances, give the EBM RentCover team a call on 1800 661 662.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.
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