How strata ‘compensation’ really works

Owners forced to sell at market value without one dollar in compo

“New strata laws will force out owner-occupiers who are unwilling to sell, but the compensation spruiked by the NSW Government is just smoke and mirrors and owner-occupiers will be locked out of the market”, said CPSA Policy Coordinator, Paul Versteege.

This is how it really works:

- The Body Corporate negotiates a sale price for the entire strata scheme with a developer wanting to replace the smaller apartment block with a much bigger one.

- The Land and Environment Court determines compensation value for each lot in the strata scheme, but this is based on the market value of each lot as if a developer hadn’t walked in with a huge sum of money, including a premium by way of sweetener. It’s an artificial value much lower than the real market value.

- The Land and Environment Court will also award compensation for relocation costs, such as stamp duty, legals and so on. However, this compensation is on top of the lower, artificial market value the Court has determined. As a result, the total compensation value is highly unlikely to equal the real market value, let alone exceed it.

- Forced-out owners receive the higher of the (1) Court determined compensation value and (2) real market value.

- This sounds good, but when forced-out owners then try and buy a comparable apartment in a comparable block in the same area, they need to spend all they received from the forced sale on their new apartment. The market value of that apartment will be same as the market value of their old apartment. On top of that they will have to pay their own relocation costs such as stamp duty, legals and so on. These relocation costs will top $50,000 and are costs for which they have not been compensated.

“With its new strata laws, the NSW Government is about to create a new category of people, including the old and frail, who are locked out of the property market, and it has at the same time dealt a blow to the sensitive issue of affordable housing”, said Paul Versteege.

Paul Versteege 0410 612 182