Strata Policy Makers go to the Forum

It's often hard to find the government people in charge of strata title.  And, even harder to find out what they think.

But today, Griffith University is hosting the Strata Title Policy Makers' Forum as the prelude to its strata title conference on the Queensland Gold Coast.

And the Forum is a unique opportunity for us to hear government thinking on strata title issues.  

With an agenda developed in consultation with government representatives in New South Wales, Northern Territories, Queensland, Victoria and Western Australia, the objective of the Forum is to facilitate the exchange of ideas concerning challenges, initiatives and mechanisms relating to the development and delivery of strata title government policy. 

Professor Guilding says 'The Forum’s program has been formulated in a spirit of facilitating information dissemination and also laying the basis for constructive debate and discussion that can instigate insights pertaining to the challenge of enlightened strata title policy making'.

It's great to see government participating in this exercise and I'm looking forward to hearing what they've got to say and how it might affect strata stakeholders.

Francesco ...

What do Fanny’s have to with US Strata ?

I was reading about US strata corporations losing Fannie Mae and Fannie Mac approval and wondered why it was a big deal.  So, I investigated it more and found out some fascinating things about the drivers of the medium and high density real estate sector in the US.

The story goes something like this.  And, sorry, it’s a long story.

In the USA the residential real estate mortgage market works a bit differently to Australia.  Apart from the mainstream banks who provide mortgage finance there are organisations like Fannie Mae and Fredie Mac that sit behind banks and underpin residential mortgages.

GSE's Explained

So, what’s a Fannie Mae or a Freddie Mac?

Fannie Mae and Freddie Mac are government-sponsored enterprises with a mission to provide liquidity, stability and affordability to the US housing and mortgage markets and to increase the amount of funds available in order to make homeownership and rental housing more available and affordable. Fannie Mae and Freddie Mac work with mortgage bankers, brokers and other primary mortgage market partners to help ensure they have funds to lend to home buyers at affordable rates.  These kinds of loans have low rates and very low down payment requirements (usually 3%) and the government guarantees those loans so the lender is protected in the event of default.

Fannie Mae, Freddie Mac and other GSEs (government sponsored enterprises) buy loans from lenders – allowing the lender to offer a low interest rate since it sells the loan (and the risk) to one of these entities.

The Federal Housing Financing Agency (FHFA) is a government agency created to regulate and oversee GSEs like Fannie Mae and Fannie Mac and to make sure the GSEs operate in a "safe and sound manner".  So it reviews business practices of the GSEs and effectively sets the parameters for mortgage lending.

So when someone wants a Fannie Mae or Freddie Mac backed mortgage in a condominium or community association the condominium or community association operations must satisfy the FHFA requirements … otherwise there’s no loan at these lower rates and favourable terms.

Approval Guidelines

These requirements are detailed and complex and include things like –

• there are two or more units
• the project is 100 percent complete
• construction has been finished for at least one year
• 100 percent of the units have been sold
• no one owns more than 10 percent of the units
• the budget funding replacement reserves for capital expenditures and deferred maintenance (at 10%)
• home owners are in control of the association
• at least 50 percent of owners occupy the property
• there’s adequate hazard and liability insurance (including flood and fidelity insurance where necessary)
• less than 25 percent of the total floor area in a project is for commercial purposes
• the commercial portion of the project must homogenise with residential use
• less than 15 percent of unit owners fee payments are in arrears 
• only 30% to 50%, of the units can be funded under FHFA approved lenders (with exceptions available)
• there must be a satisfactory independent budget review establishing that the budget:

   - is adequate,

   - includes allocations to ensure sufficient funds to maintain and preserve all amenities and features of the project

   - provides for funding of replacement reserves for capital expenditures and deferred maintenance at least 10% of the budget

   - provides adequate funding for insurance coverage and deductibles

In some cases a reserve study may also be required.

And, FHFA approvals expire after a period of time so also need renewal.

Unsurprisingly, many of the current operational and management practices in US condominium and community association exist to satisfy FHFA approval, rather than because of legislative requirements or simple market forces between managers and owners.

Current Issues & Developments

In the past strata corporations viewed FHFA financing negatively.  But declining real estate values and the banking crisis has eliminated many options from conventional lenders who will not finance properties if the loan is not acceptable to the secondary market (Fannie Mae, Freddie Mac and the like).

So today, Fannie Mae or Freddie Mac approval may bring more buyers for units  

because financing will be more readily available. Additionally, the increased marketability of those units currently for sale in a Fannie Mae or Freddie Mac approved project not only helps the current sellers, but also serves to increase the value of all units in the condominium. This will not only help owners currently looking to sell or refinance, but will also help those unit owners who may wish to sell or refinance their units in the future.

The November 2009 guidelines temporarily increased the number of permitted FHA insured loans in a particular project from 30% to 50%.  100% of the loans can be FHA insured if the project meets all of the basic condominium standards and the additional items. 

Fannie Mae recently auctioned close to 100 South Florida properties.  Those properties were only offered to owner-occupants (individuals and families who plan to live in the homes), not investors, in an effort to stabilize neighborhoods severely impacted by foreclosures.

There are some obvious benefits to GSE financing and some obvious detriments.  One benefit is flexibility - government backing allows Fannie Mae to offer hardship relief to home/unit owners.  For example, Fannie has the ability to offer loan forbearance to mortgagors plagued with chinese drywall (allowing them to skip 6 months principal payments so owners can catch up other financial obligations.

See you at the next Fannie Mae mortgagee sale.

Francesco …

Urban Planning Goes National

In December 2010, the Australian government released Our Cities - building a productive, sustainable and liveable future, a discussion paper which sets out the framework for a national approach to urban development and the challenges that must be addressed for Australian cities to become more productive, sustainable and liveable.

It’s planned that a new National Urban Policy will be released in 2011 and the Our Cities framework is open for public comment until 1 March 2011.

The National Urban Policy will be focused on the following things.

Achieving the Australian government’s aspirations for realising the productive capacity of cities by supporting long-term and strategic planning in conjunction with the State, Territories and Local Government, the private sector and communities, and investing in quality, efficient infrastructure including transport, communications and smart infrastructure in terms of which critical infrastructure corridors, sites and buffers will be provided.

Improve sustainability by encouraging planning and development of more energy efficient, low carbon urban forms of transport and a sustainable transport system; encouraging investment and innovation in renewable energy; leading regulator reforms for more efficient use of resources including energy and water; establishing sustainability standards for buildings and infrastructure;  providing national data and best practice examples for resource consumption reduction and for managing risks such as climate change and security of water, energy and food; supporting updated and nationally consistent design standards and performance criteria to reflect the need to adapt to climate change; and investing in sustainable technology and smart infrastructure.

Improving livability by requiring future integrated long-term (15-30 year) strategic plans for capital cities, supported by medium (5-15 year) prioritised infrastructure and land-use plans. Additionally, the Australian government will link government investments to planning systems for the design of liveable cities, pursue regulatory reform to deliver secure, appropriate and affordable housing, and foster urban planning and design of the built form to encourage active lifestyles and social interaction while reducing dependence on motor vehicles in urban areas.

Reform urban planning operation and governance by working with COAG to create less ‘cumbersome’ administrative processes to minimise time and costs for proponent and administrative bodies, while still having regard to the need for community consultation. And, possible amalgamation of local councils areas to create larger entities that can plan, finance and coordinate larger population areas, and achieve greater economies of scale in service delivery and asset management.

This is happening in the following context –

• the Australian government’s State of Australian Cities 2010 report which points to challenges from population ageing; population growth; and climate change and the environment
• the 2010 Intergenerational Report which states that Australia’s population will grow from 22 million today to 36 million by 2020
• the National Housing Supply Council’s State of Supply 2010 report, which estimates that this will create a need for 3.2 million additional homes by 2029 and there is likely to be a shortfall of 640,000 dwellings if the market fails to respond
• the Bureau of Infrastructure, Transport and Regional Economics (BITRE 2007), which estimates that the avoidable cost of road congestion is in excess of $10 million per annum which will continue to rise to $20 billion per year under a ‘business as usual scenario’.
• with regard to climate change and the environment, Our Cities notes that growing urban populations place pressure on land, water and energy while increasing waste. It also acknowledged that Australia’s cities, including their housing and infrastructure are at risk from climate change including through higher temperatures, changed rainfall patterns, increased storm events and rising sea levels. Climate change impacts on infrastructure alone could reduce GNP by 1.2% by 2050 and by 2.4% by 2100.

Australian National Urban Policy complements the government’s Sustainable Population Strategy, which will also be released in 2011, and builds on the 2009 COAG agreement on cities reforms. The COAG agreement requires that by 2012, Australian States and Territories have in place capital city planning systems that are consistent with agreed criteria. The National Urban Policy will apply to 18 Australian cities with populations of over 100,000 people.

So, it’s clear from this latest initiative and the COAG agreement that the Australian government will be playing a greater role in directing the future profile of cities with respect to the built environment, housing, infrastructure, transport, sustainability, and the resilience of cities to climate change. Major streamlining of State and Local Government planning and assessment processes is also likely.

Medium and high density is a critical part of this debate so make sure you’re experience, views and preferences are heard and make a submission.

Francesco …

Put down that Wine Glass … we need to review South Australia Strata Laws

I’m a big fan of South Australia as it has so much going for it .. hot dry weather (I hate humidity), no bad traffic (which is good for cycling), great food and wine and nice people (self explanatory).

But we can’t just lounge about enjoying their fine riesling and shiraz without doing some work from time to time … and now that work is to make sure the changes to South Australian strata laws get done properly.

The changes have been announced by SA Attorney General, John Rau, who said that draft legislation which will be introduced to SA State Parliament next year and that public comment is being sought on the changes.

He also said that the changes would include –

• restrictions on who could be a strata manager
• giving owners the right to terminate manager contracts at any time
• compulsory professional indemnity insurance for strata managers
• rights to revoke proxies at any time
• limiting proxy life to 12 months
• better disclosures of conflicts of interest
• provisions for co-insurance of some or all of the buildings in a community scheme

So, let’s watch out for the draft legislation and make some (helpful) comments.

And, see you at an SA winery with a copy of the Strata Titles Act 1988 (SA) getting up to speed.

Francesco …

Victorian Strata Laws get Tuned Up

In 2007 Victorians experienced the biggest changes in strata laws they had experienced in more than 30 years … and there were many changes.

But, like everything that’s completely new it sometimes needs some tinkering to get it working right.  And, that’s about to happen in Victoria as the Owners Corporations ct 2006 gets a tune up.

From 1 January 2011 a range of changes to Victorian strata laws come into force under the Consumer Affairs Legislation Amendment Act 2010 and the Consumer Affairs Legislation Amendment (Reform) Act 2010.

There are 2 starting dates for the changes: 1 January 2011 and 1 September 2011


In the first stage changes the new laws -

• simplify witnessing the use of the seal for owners corporation certificates, allowing the registered manager or the chairperson to witness its use 
• empowers VCAT to award a much broader range of costs to owners corporations and lot owners in disputes around arrears of fees
• clarifies that only lot owners can appoint a proxy to represent them on the owners corporation committee
• standardises the infringements framework in consumer acts, by providing a power to authorised officers (an inspector, a member of the police force or a person authorised in writing by the Director of CAV) to serve infringement notices

In second stage changes the new laws - 

• clarify that delegations to committees can be made by instrument or by resolution
• clarify that delegations must be made at general meetings and committee delegations end at the next AGM
• provides that owners corporations without valid delegations before 1 September 2011 can ratify earlier decisions

You can find out more at Consumer Affairs Victoria

And if that’s not enough CAV also plans to launch a complete review of the new laws in 2011 to examine their impacts on owners corporations and what more should be done in consultation with owners, strata schemes. Managers, industry groups and other stakeholders.

Francesco …