Living in an apartment, townhouse, or any strata-titled property comes with a ton of perks – convenience, security, and sometimes even fancy amenities like pools and gyms.
But there's also a cost associated with sharing the responsibility of these spaces: strata fees.
Note: Essentially, strata fees are a financial contribution from each owner to cover the maintenance and management of the common areas and facilities within the property.
Think of them as a shared investment in the upkeep and improvement of your living environment.
From what a strata fee is to what it covers and how to calculate how much it’ll be, here is a rundown of everything you need to know about strata fees in Australia.
What are strata fees?
Put simply, when buying an apartment or townhouse where there are common areas, an Owners Corporation or Body Corporate is formed and becomes responsible for the management and upkeep of the building as a whole, and all owners are members.
Tips: Think of strata fees as your contribution to the communal kitty to cover the upkeep of shared areas and the overall smooth running of the building.
This money goes towards the upkeep and maintenance of all the shared areas in your complex.
We're talking lobbies, elevators, gardens, swimming pools, gyms – basically, anything you don't own within the four walls of your unit.
As a legal entity, strata laws vary for each Australian state, but generally, fees are paid into a fund managed by a strata manager on a quarterly basis.
What do strata fees cover?
Strata fees encompass a wide range of expenses. These can include:
- Maintenance of Common Areas: This covers the cleaning, gardening, and repairs of shared spaces like hallways, elevators, pools, and gardens.
- Building Insurance: While individual contents insurance is the responsibility of each owner, strata fees typically cover building insurance.
- Utilities for Common Areas: This includes water, electricity, and gas for shared areas.
- Administration Costs: Fees for managing the strata scheme, including the strata manager's salary, legal fees, and office expenses.
- Sinking Fund Contributions: This is a reserve fund for major capital expenses like roof replacement, painting, or large-scale repairs.
- Special purpose levies: If there is a shortfall of funds in either the administrative or sinking fund levy, a special levy can be used to raise funds. This is usually a one-off levy for the owners to pay for major works or a major expense required.
Given that strata fees are generally used for the maintenance and management of shared or common areas, it's important to also understand what they typically don’t cover, such as the following:
- Contents insurance for an owner’s personal belongings.
- Council rates for each property.
- Maintenance, repairs, and improvements to your private-use property. For example, installing air conditioning or fixing a blocked toilet would not be covered.
- Utilities such as water, gas, and electricity, unless there is a shared meter and this cost is covered by strata fees. An owner would need to check with their own strata management company as this varies.
How to calculate strata fees
Calculating strata fees isn't a one-size-fits-all process. It involves several factors:
- The size and value of your unit: Larger or higher-value units usually pay more since they occupy more space and potentially benefit more from the common facilities.
- Amenities: Properties with more amenities (like gyms, pools, or elevators) tend to have higher fees due to the increased maintenance costs.
- Location and Condition: The location and age of the building can also influence fees, as older buildings or those in prime locations might require more upkeep.
- Budget Approval: Each year, the owners' corporation (all the owners within the scheme) approves a budget, which determines the total amount required. This amount is then divided among the owners based on their unit entitlements.
The total strata fees are usually decided by a simple majority vote at an Annual General Meeting (AGM), and this is then divided up between owners.
There is no specific legal requirement when it comes to setting strata fees, but the fund is required to be sufficient enough to manage and maintain the common property.
Annual levies can range considerably, but as a guide, owners can expect to pay 0.6% to 1.2% of the property’s value in strata fees if there are multiple facilities, such as pools, gyms, lifts, etc.
The annual levies for units, villas, townhouses, and apartments with few or minimal facilities generally fall in the 0.2% and 0.6% range.
How much are strata fees in Australia
It is difficult to say exactly how much strata fees are in Australia as it varies so much.
It could be as low as $30 per week - and as high as $600 per week but depends on the property’s age, size, condition, maintenance schedule, and strata committee.
Note: Generally, you can expect that the smaller the apartment, townhouse, or villa complex, the less the strata fee will be as there will be fewer or smaller common areas to maintain.
So, before buying a property under a strata title it is important to request a strata report and ask for the previous few years’ of strata fees to determine what you can expect to pay.
But remember that this figure may change in the future, particularly if major capital works are completed.
Tips: If you want to avoid having to pay high strata costs you might want to avoid complexes with facilities such as a pool, gym, or elevators as these owners will need to pay significantly more than those who live in complexes with basic or no amenities.
While owner-occupiers might like these features we at Metropole suggest investors steer clear of buildings with these types of expenses.
We also always allow for a buffer in your investment budget, in the event that your strata fees rise.
While you’re looking at the previous year’s strata reports, check for any upcoming works, how much money is in a sinking fund for future repairs (if any), and for any ongoing disputes between the owners or with other tenants.
The average strata fees for a townhouse
Again, this is difficult to determine as it varies so much depending on the age, location, size and condition of the property - the value of the townhouse also plays an important role too.
You should expect to pay between 0.3% and 1.2% of a property’s value in strata fees.
Considering these factors, an owner can expect to pay anything between $550 and $2,500 per quarter in strata fees for a townhouse.
In some cases, it could exceed this guesstimate.
The average strata fees for an apartment
It is difficult to determine the average strata fee for apartments as it varies so much depending on the age, location, size and condition of the property - the value of the property also plays an important role.
As with townhouses, you should expect to pay between 0.3% and 1.2% of a property’s value in strata fees.
In some cases, it could exceed this guesstimate.
Who pays the strata fees when renting?
Strata fees are paid by the property owner, not the tenants.
Owners and tenants need to have their own contents and public or collective liability insurance for their own units.
It’s also a good idea for owners renting out their properties to take out landlord insurance to cover carpets and legal liability within their tenanted units and car park lots.
Are Strata fees tax deductible for property investors?
Many investors who either own or are planning to buy a strata property are unsure as to whether they can claim strata fees as a tax deduction.
The answer depends on the type of fees charged.
According to the ATO, expenses are deductible depending on what the fees are ultimately spent on (either a capital item or a deductible item).
Generally, the ATO has accepted the following general rules.
Administration fund levies that are for the general running expenses of the complex are deductible when incurred.
Note: Sinking fund levies that are imposed on a regular basis are deductible and the owner does not need to differentiate based on what happens to the funds (i.e. whether spent on deductible expenditure or capital expenditure).
Special purpose levies must be traced to see what the actual funds raised were used for. If they were to repaint the entire complex or replace the entire driveway, they would be capital expenses and not deductible.
A final note for investors…
Strata schemes are only as good as the owners within them.
If you have a dormant strata manager or body corporate, that usually spells trouble for the future profitability of the complex.
Investing in investment-grade units and townhouses can provide capital growth potential and solid yields, but not if you buy into a scheme that doesn’t even have any money saved for a rainy day or one where the owners don’t seem to care about the upkeep of the building.
Over the last few years, too many of the wrong types of apartments have been built – many high-rise towers aimed at overseas investors built out of paper mâché.
Note: Smart investors are steering clear of these investor-dominated buildings for many reasons including no likely capital or rental growth for a decade and the scare of poor quality building issues.
However buying older established family-friendly apartments (those that were previously called flats), villa units, or townhouses, which are located in the right inner and middle-ring suburbs of our capital cities, and with good strata management, can make good investment sense.
