Corporation Fees – Where is Your Money Going?

Posted by Jack Guthrie

Many people are surprised by the extra costs that are inclusive in owning a property. The reality is a 10% deposit and interest payments just don’t cover all the bases. The general running of a complex has to be covered by the owners, and can vary from property to property.

Corporation fees are an important expense that must be assessed when investing in strata titles, but many new all investors don’t understand what they are, and have the potential of throwing out an investors’ feasibility. So if this is you, and budgeting effectively for investment is something you are interested in, keep reading.

What are corporation fees?

Often called contributions, strata fees or ‘body corps’, they are annual monetary payments made by the property owners to cover the operating expenses of a complex. At each annual general meeting, a proposed budget it presented to owners for the coming year. Owners’ payments go to the corporation, who then pay for the general expenses throughout the year.

Why do they change over the years?

Since levies cover the running costs of a building, they may increase in line with the natural rise of inflation. Also, as the building itself ages the need for more maintenance will grow, meaning more money spent on things such as plumbing, electrical services and general repairs.

Why are fees higher in one dwelling than in another?

Obviously, some complexes have more common amenities than others and the quality of these are unique to each. Those with higher level inclusive amenities generally have higher annual corporation fees, and with good reason.

As we have observed a shift towards a renting demographic in our cities, it is becoming more and more prevalent that tenants gravitate towards dwellings with higher quality amenities. Contemporary constructions have evolved to incorporate services that accommodate the needs of modern tenants, with inclusions such as gymnasiums, pools and common bars/dining areas becoming more prevalent. Consequently, the properties with higher fees are generally affected less by the impacts of vacancy as tenants react positively to the properties’ greater elements of liveability. Furthermore, those with greater amenities can afford to fetch greater rental incomes to offset the higher costs!

To demonstrate that higher fees are not always a bad thing, view the results below from five of our most recent properties within the Melbourne market. It looks at the asking rentals of the properties in the market and how they correlate with the costs incurred. Comparatively, those with fees above $2,500 had a weekly asking rental that was $77 higher than those below. This equates to a yearly rental income difference of over $4,000 which largely offsets the extra costs.

Table 1 – Corporation Fees and Yields (Source: Blue Wealth Property Data Base)

	Median asking rental
Dwellings with fees lesser than $2,500 per annum	$446/ week
Dwellings with fees greater than $2,500 per annum	$523/ week

There are no cutting corners when it comes to investing in the right property, and although you should look for the best value for your money, investing in something with cheap fees shouldn’t be the aim. As the old saying goes, sometimes you have to spend money to make money.

Posted by Jack Guthrie, on 10th Oct 2017