Is the Strata Management Industry in Australia Under-pricing Itself on Smaller Buildings?

Is the Strata Management Industry in Australia Under-pricing Itself on Smaller Buildings?

 

Owners Corporation Management in Melbourne

A few months ago, I had coffee with Richard, the Managing Director of one Melbourne’s large strata management companies.

One of the topics that came up over coffee was how much strata management companies charge for their professional services.

It was an interesting discussion as it confirmed what I had been suspecting for a few years – the strata management industry in Victoria was (and is) been flooded by new entrants who were exerting downwards pressure on pricing.

Richard was facing this issue firsthand with his company. Richard’s view was – that they, as a large and established company, were not able to charge what they needed to on the smaller buildings because of all the new (and predominantly) one-man operators, coming into the industry.

And there are certainly A LOT of them. And surely at some point, the sheer volume of these new entrants will intersect the operations of the more established and recognised strata management companies.

 

Macquarie Bank’s industry benchmarking:

Is the Strata Management Industry in Australia Under-pricing Itself on Smaller Buildings

 

The Competitive Landscape in Strata Management

Richard’s company was large and recognised – they had a large office, a team of experienced strata managers and numerous support teams. The recruitment and the retention of staff (especially OC managers) was an on-going effort and also represented a substantial expense for his company.

Smaller owners corporations when issues arise require the benefit of knowledge, professionalism, systems, and staffing – no different to any other owners corporation.

However, on the other hand if Richard were increase the management fees on the smaller buildings that they manage, he felt that they would lose a lot of their clients to these one-man operators.

 

New Owners Corporations Managers in Victoria – Be Up & Running in 5 Minutes!

One of Richard’s very own OC managers had recently left to start a ‘owners corporation management company’, and in a short span of a few weeks the former employee was able to:

  1. Register with Consumer Affairs Victoria as a manager in his own name;
  2. Take out a professional indemnity insurance policy;
  3. Have a website built; and
  4. Start calling himself an owners corporation management “company” and start contacting some of the clients that he used to manage…. [which is obviously both legally and ethically questionable]

The competitive pressures when you see that there are these one-man operators pricing themselves in the marketplace at $180 to $260 per lot management fee to manage blocks of 4, 6, and 8 becomes clear.

And it would seem to be the modus operandi of these one-man operators (along with a lot of other franchises) to charge low fees and do the minimum. Or in some cases send out quotes with low management fees but charge a bunch of additional fees later on.

 

Price is What You Pay, Value is What You Get

We have helped many owners corporation to change management companies whereby this adage has been proven to be the case.

Our primary focus in speaking with Committees and Owners Corporation is about what the issues are and how they can be solved.

We had an owners corporation contact us – a small block of townhouses in Melbourne’s northwest. The townhouses were new and modern, and the owners were lovely people but unfortunately the builder/developer had, for whatever reason, appointed a not-so-good owners corporation manager.

The owners corporation manager by a small-operated-from-home operation and the lady was their manager (in their words) was “rude, verbally abusive, and deliberately misdirecting the owners on various matters”.

When we sat down with the Owners we told it to them straight – they were paying very low management fees and through our process any new management company was going to cost more (however be much more professional).

[The owners corporation ended up changing management companies and haven’t looked back since – their job is to live there and enjoy their property, when things come up the OCM takes care of that.]

Owners corporation Committees change owners corporation services companies for many reasons however in 10+ years of speaking with Committees – the number 1 reason always seem to come back to one thing – service (or the lack thereof).

 

Comparing What Strata Managers Charge vs Property Managers

As of 30 March 2020, the average rental price in Melbourne was $545 per week.

The average property management fee in Victoria (according to Macquarie real estate 2016 benchmarking) was 6.2%.

Therefore, on average, real estate agencies are being paid $1,747 per year to perform the service of providing on-going property management.

In contrast, as it stands the average strata management fee in Victoria sits at $300 per lot.

Of course, what a property manager and what a strata manager does day-in and day-out does differ on some levels. And with owners corporations the OC manager does have some measure of economy of scale.

However, the question is then what happens to ‘economy of scale’ on these smaller buildings?

 

So, Strata Management Industry, What Can Be Done About It?

The solution (whatever it may be) has to be a multi-pronged approach:

  1. Accreditation of strata managers as professionals has long been talked about but is now well and truly overdue.
  2. The strata management industry bodies (namely the REIV and SCA) has traditionally set minimum fee charges as guideline for their members – however a lot of these reference points are out of touch. There needs to be a more proactive approach to regularly review and update these guidelines.
  3. Large and more established strata management companies need to draw a line in the sand and stick to their guns on their minimum fee charges – and put their focus on service delivery and customer experience.
  4. Lastly strata owners and OC Committees need to undertake their own due diligence and keep in mind:
    1. Heavily scrutinise these one-man operators if they’ve been in business for all of 5 minutes then beware – read this article that we wrote (Why You Shouldn’t Trust a One-Man Band to Manage Your Money and/or Owners Corporation);
    2. Don’t fret over and fall for the cheap and low management fees – often those sort of companies sting you with a lot more hidden and undisclosed fees and charges. Anything from charges for any time a finger is lift to charges for charges’ sake, and right through to added margins on your tradies’ invoices;
    3. Recognise the overheads that strata managers (be it a newer operator or an established company) have within their businesses – proper off-the-shelf strata management software alone costs of upwards of tens of thousands of dollars; and
    4. Recognise that strata management is burgeoning professional services industry that is growing and fully appreciate that in the long run it’s cheaper to hire a professional than an amateur. Take it from us – we’ve seen too many buildings and owners corporations fall into peril because of bad advice.
  5. [18 May 2021 update – we received this comment from one of the Directors of another management company that we work closely with: “Another point of interest is that from my observation the overall Average Management Fees per lot has not grown by much if you were to compare the average now vs say the last 15 years for instance – and this against rising staff cost, office rents etc”]

 

 

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.

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