This graph demonstrates the Owners Corp. spend for a 22 storey high rise building with 128 apartments.
The Primary Question for lot owners – either before you purchase or as an existing owner looking at your Notice of AGM – is why do we pay Owners Corporation Fees and where is the money spent?
We have selected a typical high rise building that has 22 storeys and 128 apartments and looked at its operating budget and reasonable maintenance fund and charted the annual costs accordingly. As you can see, putting money away for the future, replacements/refurbishments accounts for over 25% of annual fees.
What is a maintenance fund and why do we have them?
Maintenance Funds are a legislative requirement in Victoria for large Owners Corporations and make good plain sense for all the rest! These funds are set aside for longer term capital works programs that accommodate a building’s natural aging process.
But why do capital works at all, are they necessary?
Two reasons really: first of all because the legislation says you have to and sometimes you may be faced with compliance issues in regards OHS matters. Secondly, and probably more importantly – you should want to. Improving, refurbishing, replacing are all ways to maintain and increase your net capital worth in a property and enhance your lifestyle.
Maintenance Fund works can increase the value of your building and/or restore it to the value that it should have in the real time market.
Operating Expenses: What are they and what is the breakdown?
As the pie chart indicates, Building Services (cleaning, management, fire svc, lifts) account for over 25% of operating costs with Insurance at nearly 10% and Utilities (gas, water, electricity) accounting for another 15%. MICM Property uses its bulk buying power to negotiate with major contractors to keep these costs market driven vs. service driven. A Fire Services Tender carried out in 2011 saw a 30% reduction in contract pricing.
The high costs of employing labour, rising risk and return ratios for property insurers and the mind field that is the carbon tax are all putting pressure on the day-to-day cost of operating your owners corporation.
Last but not least, the second most asked question about OC fees:
How are owners corporation fees calculated?
Each lot of an Owners Corporation (eg. your apartment, your carpark, your storage area) has a stated ‘Lot Liability’ that is indicated on the Plan of Subdivision. The annual operating and Maintenance Fund budgets are divided by the lot liability for each apartment/carpark/store that you own and a resultant annual levy is established.
No matter how you slice it – protecting and providing for your asset is the smartest investment decision you will make!