Time to read : 6 Minutes
If you’ve scraped together a decent deposit and talked to your lender to find out what your borrowing capacity is, you can move on to the exciting phase… finding, and eventually buying a property.
But besides budgeting for the mortgage repayments, stamp duty, insurance and possibly mortgage insurance, unless you’re buying a house, there is another big cost that you may need to factor in. And that’s the strata fees which are also called body corporate fees.
Let’s take a closer look at strata fees and how they can inflate your expenses.
What exactly are strata fees?
Strata fees only relate to strata-titled properties. These include:
apartments / units / flats
villas
townhouses
duplex complexes.
These properties have shared or common spaces and strata fees or levies are designed to cover the costs of their maintenance. Anyone who has bought a strata-titled property will be required to pay strata fees.
The fees are based per lot – not per person – in other words if you buy the property with another person you can share the cost. If you buy the property with two others, you can split the costs three-ways.
Be aware: the contribution you’re required to make is determined by the size of your property. This means that in an apartment block, the larger units will incur higher strata fees. Note that strata fees are the responsibility of the owner – if you’re buying an investment property, the fees are not passed onto tenants.
Why is there a big difference in strata fees from one unit to another?
When you go from one property viewing to another, it’s not uncommon to find wide differences in the strata levies.
The general rule is: the more common areas there are, or the greater the up-keep required, the higher the strata fees you’ll pay.
As an example, you’re likely to have higher strata fees if your property features a:
gym
swimming pool
lift or several lifts.
Think of it this way, someone will need to be hired to:
Keep the gym clean, tidy and make sure the equipment is in working order.
Make sure the swimming pool is free from debris and test the water for the right chemical balance and adjust as required.
Service the lift when it’s on the blink.
All of this is costly. Other shared spaces such as a lobby or gardens – particularly if a gardener is required – can also contribute to higher strata fees.
The laws around strata fees vary across Australia however the fees are usually paid quarterly into a fund that’s either managed by a self-managed body corporate or outsourced to a strata management company.
Be aware: the strata fees are often not listed in the contract. They can be found on the marketing material which is handed out at the inspection or in the strata report. The latter is a detailed report that comes at a cost so it’s generally only ordered when you’re seriously considering a property purchase.
Top tip: be diligent and ask the agent for the strata fees and other outgoings such as council rates and water. They will know this information so if they don’t disclose it up front, ask them for the costs.
Why do you need to budget for strata fees?
The important thing to pay attention to is the way the strata fee is presented. Is the fee referenced as a quarterly or annual payment? Let’s say the strata fee is $750 per quarter, you’ll need to budget $250 a month or $3,000 a year to manage these fees.
$3,000 each year for however many years you’ll own the property, well, it all adds up. Let’s not even mention strata fee increases.
Where you can land in hot water is if you over stretch yourself with a higher mortgage, or if interest rates go up.
Look beyond just your monthly mortgage payments and remember to allow a buffer to pay for the strata fees, as well as all the other costs associated with being a property owner.
What else do strata fees cover?
Besides cleaning and maintenance, strata fees also cover expenses including:
Utility bills: water, electricity and gas of common areas. (Each owner occupier or tenant still needs to pay for their own, personal use of utilities).
Building Insurance: each owner is responsible for contents insurance (if they wish to take out this cover) however the strata fees cover building insurance.
How are strata fees broken down?
Strata fees fall into three areas:
Administration levies
These levies cover the costs for managing the strata scheme and the ongoing management of the building such as gardening, cleaning and maintenance plus any legal fees and office expenses.
Capital works levies
Also known as sinking fund contributions, these pay for large-scale, but less common repairs and maintenance for example painting the building’s exterior or roof restoration.
Special levies
These are one-off levies designed to pay for a specific major work when sufficient funds are not available in administration or capital works. Sometimes, special levies are required when the work doesn’t fall under administration or capital works.
Are strata fees tax deductible?
If you rent your property to tenants, you may be able to claim the strata fees as an expense.
According to the ATO, not all body corporate fees are deductible in full in the year you incur them.
Generally speaking, you can claim the administrative funds but the rules for capital expense funds are different. These can only be claimed once the work is completed and needs to be done across several years.
Find out more and explore examples of tax deductible strata fees and speak to your accountant when you’re doing your tax return.
What if you can’t pay the strata levies?
If you ever feel the pinch, the first thing you should do is have a conversation with either your strata manager or the committee. They may be able to work out a payment plan. It may help prevent being charged late fees.
As a last resort, legal action could be taken for unpaid fees. These steps are similar to debt recovery processes.
Bottom line
For many people, buying an apartment is the way to get on the property ladder but always remember strata fees are unavoidable for strata-titled properties and it’s worth asking the estate agent for them as early as possible.
Although luxuries such as a pool or gym may mean you’ll have to pay higher strata fees, the reality is buying a house with these nice-to-haves may be out of reach… for now at least.
With all the extra costs associated with buying a property, it may be time to rethink your finances and budget.
If your apartment complex has a gym, perhaps you can cancel your gym membership? If you don’t own a car, you could consider renting out your car space (if you have one). Or maybe you’ll rent out your new apartment and reap the tax benefits?
And if you’d like help figuring out if you can afford both a mortgage and strata fees, Compare Club’s mortgage brokers are on hand to help.
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Financial Disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
