A guide to managing unexpected construction and insurance costs
With growing awareness of the risks of combustible cladding in Australia’s high rises, many strata managers are proactively seeking professional advice about materials and fire safety within their buildings.
In New South Wales and Victoria, council municipal building surveyors are now issuing building notices, requesting a written response on the strata committee’s plan to resolve the potential hazard.
Body corporates are understandably motivated to address the problem quickly, given the threat to both life and property. But they face three significant obstacles: the high costs involved with both the assessment and the recommended solution, an exponential rise in insurance premiums, and the subsequent risk of a building valuation decrease.
“For a large high rise with 400 apartments, the engineering consultancy alone could cost as much as $200,000,” says Tim MacKenzie, National Head of Strata for Macquarie Business Banking.
On average, replacing the cladding on most apartment blocks will then cost between $3 million and $10 million.1 Meanwhile, according to ABC reports, building insurance premiums are rising by as much as a multiple of four.1
“The challenge is to find a way to fund the solution – in a way apartment owners can afford,” says MacKenzie.
As specialist bankers to the strata sector, Macquarie Business Banking offers two options: a Strata Improvement Loan to cover the costs of assessment, planning and rectification (as well as any upfront insurance excess), and cost-effective monthly insurance payments through Macquarie Pacific Funding.
Funding a fire-safe response for combustible cladding
Under Australia’s National Construction Code, any building over three storeys must have non-combustible cladding on its external façade. Unfortunately, Aluminium/polyethylene composite cladding (ACP) was a common construction material between 2005 and 20152 – and while it met building certification requirements at the time, it is now considered combustible.