Nightmare or Opportunity? | Impression Real Estate
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Nightmare or Opportunity?

Posted by Aaron Tunstall on 29, Oct 2013

Leaky buildings are an apartment owner’s worst nightmare, but some brave buyers are taking the risk. 

Most Real Estate Agents have a leaker or two on their books, and apartment specialists have more than most. Leakers tend to stay on the market for avery long time if not priced right.
 
People don’t want to buy leaky apartments because of the cost of repairs, the potential for costs to escalate, the scary possibility of lawsuits, and the unknown ‘stigma discount’ that may apply when reselling after remediation. Plus, you can’t get a bank to lend you any money to buy a leaker, so you need to stump up the whole cost. Even if they sell agents don’t like them much – there’s already been a fine issued this year to a real estate agent over the sale of a leaky building, so agents know they need to tread extremely carefully in this area. The majority of Auckland’s leaky apartment buildings have been identified, but we do hear rumours about other buildings which are said to be leaking. We take it all with a grain of salt, but it just adds to the general feeling of unease and nervousness which surrounds leaky buildings.
 
How can you tell if a building is leaky? 
 
Only an expert can be totally sure, but there are certain styles of construction which are particularly prone to letting in water:
 
•  monolithic ‘Mediterranean style’ cladding
•  complicated designs with roof sections at different levels and unusual window shapes
•  a lack of eaves
•  internal guttering
•  decks, either solid-walled or joining directly into wall cladding
•  built in the years 1987 to 2004
 
Outside, cracking, staining and delamination are all warning signs. When you’re inside, you may notice swollen skirtings, black mould spots on walls or stained window trims. (For more detailed information talk to an expert.) Yes, it’s all sounding like your worst nightmare. So who would buy one? The short answer: Investors with balls of steel. These apartments are super-cheap, sometimes less than half what they would be worth if they were in watertight buildings.
 
In some cases they can be below $100,000. Buyers of leakers look for buildings where the extent of the damage is known, the cost of remediation is established and the special body corporate levies to cover the repair job are already set. These costs can be vertiginously high: $80,000 for one year in the case of one central Auckland building, but (theoretically) back to normal the next year. Costs of repair can be astronomical: $20 million for Wellington’s St Pauls and Spencer on Byron in Takapuna; $21 million for Orewa’s Nautilus. 
 
Taking into account these extra-high levies, the investor hopes to come out ahead when the building is declared watertight again. It is possible, and it has been done successfully by a few brave souls. But it’s not for the faint of heart or the ill-informed. Each building is different and each has its own risks. One Auckland building has had the tenants evacuated, and some buildings are so damp that they may ultimately require demolition. 
 
Considering this extremely high-risk strategy? Know everything about the apartment in question and be thoroughly lawyered-up. Buyers will receive both a pre-contract disclosure statement and a pre-settlement disclosure statement, and you should also request an additional disclosure statement which provides extra information (at your own cost). With a leaky building, these disclosure statements are likely to be lengthy and complex, so you would be mad not to have your lawyer analyse these thoroughly.
 
You and your lawyer will need to unearth every bit of information you can. There are plenty of resources for people stuck with leaky homes, or to tell you how to avoid one, but if you’re thinking of buying one you’re out on your own on a very long, skinny limb.

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