Call on the government to do more to protect apartment buyers as the Nicheliving development remains unfinished after four years

With Washington state’s population exceeding three million, the government is looking for a solution to the housing crisis.

Already one of the longest cities in the world, with 150 kilometers of urban sprawl, Perth cannot continue to grow.

He needs to grow up.

To achieve this, the WA government is trying to encourage more people to buy apartments under construction and to “cut red tape” to speed up development.

But some apartment buyers, embroiled in a long-running saga with an embattled Perth developer, are wondering whether the government’s guardrails are keeping up.

Their situation highlighted one of the stark differences between signing a house and land contract and buying an off-plan apartment – home indemnity insurance.

It comes as the government prepares for a crackdown on property developers that it hopes will boost consumer and insurer confidence.

But since these reforms are still a long way off, these apartment buyers think you should read their story before committing to a purchase.

One builder, two floors

A few weeks ago, the State Government made an extraordinary intervention in the long-running saga of about 200 homebuyers who had their homes left unfinished by embattled developer Nicheliving.

The government has entered into an agreement with Nicheliving and its directors, including Ronnie Michel-Elhadj, to waive registration of the building for the next 10 years so their clients can access up to $200,000 of government damage insurance and complete the building.

Builders are required by law to carry indemnity insurance, which covers home buyers if the builder fails to perform defective work, disappears, or becomes insolvent.

But this only applies to buildings up to three floors high.

So people like Audrey Taylor, who bought an apartment in the four-story complex off the plan, were ineligible.

She paid a deposit of $18,850 for an apartment at Sky Homes Nicheliving in the Perth suburb of Inglewood in 2021.

The contract she signed was with developer Diamond Development Alliance and its director Ronny Michel-Elhaj.

Having lost his developer registration, Mr Michel-Elhaj will now need to find a new developer to complete the Sky Homes project, but he may remain as the developer.

Uncertainty continues for apartment buyers

Some of the apartment buyers received emails this week saying the developer was “in negotiations with a new developer” and that they were “expecting contract completion by December.”

“I just don’t know how much I believe them because in the past they told me there were updates that never happened,” Ms Taylor said.

Another woman, who asked not to be identified, said she put down a $34,000 deposit on one of the apartments in May 2022.

She said she was at the point where she just wanted out of the contract, but her lawyer advised her that wasn’t an option.

“It’s quite a stressful time and it’s taking a toll on me and my work,” she said.

“You feel defeated. And I didn’t do anything wrong.”

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Another buyer, Claire, put down a $35,000 deposit on a Sky Homes Nicheliving unit in 2020 and hoped it would be completed before her contract expired in mid-2026.

In the meantime, she pays about $35 a year in rent.

“It’s a missed opportunity,” she said.

“Not unique to WA”

Trade Minister Sue Ellery said while she sympathized with them, the situation was different to what home builders were going through.

She said homebuyers faced a double whammy: having to pay the mortgage and bills on an unfinished home while covering rent and other expenses.

“For a single residential building, the contract you sign obliges you to make incremental payments throughout the duration of construction, and there is no final end point when that building must be completed,” she said.

“For apartment developers… the contract you sign obliges you to pay an up-front deposit, which is held in trust… and that contract has a limited duration.”

Ms Ellery said the lack of damage insurance for buildings above three storeys was a “market failure”.

“There are currently no private insurers offering coverage in this particular area,” she said.

“This is not unique to WA.

“I have been advised that no Australian state or territory requires compulsory indemnity insurance for apartment buildings precisely because no private insurer offers such products.

“Our government continues to explore options on how we could provide better insurance protection for condo owners.”

Compliance issues

Building regulation lawyer Bronwyn Weir said government-backed home insurance had only existed since the early 2000s when private insurers pulled out of the market, and that the three-storey rule was agreed at the time and had simply been followed since.

“The reason apartment buildings above three storeys do not have builder’s warranty insurance is because states and territories have decided not to offer insurance for taller buildings,” she said.

“Governments have decided not to fund this part of the sector.”

One reason for this, Ms Weir said, was a higher risk factor.

“(Governments) are being very careful about how they manage risk and what level of risk they are willing to accept on behalf of the entire community,” she said.

“(It) was a high-risk area with a high level of non-compliance.”

Ms Weir co-authored the 2018 Building Confidence Report, which found a lack of accountability and regulatory oversight in the construction industry over the past two decades and made recommendations to improve compliance that were widely welcomed by government and industry.

Planned changes

Last year, in response to Weir’s 2018 report, Ms Ellery announced plans to crack down on poor quality apartment developers.

The announcement comes in the wake of the Perth apartment building saga, which saw a builder walk off the job and leave apartment buyers in limbo.

Key to the Western Australian Government’s plan is the phased introduction of mandatory inspections of apartment buildings at critical points in construction and the expansion of the powers of the State Building Commissioner – something that already exists in NSW.

Ms Ellery said she hoped the changes would increase confidence among both consumers and private insurers.

“Frankly, we hope this might give the insurance industry a reason to get back into the market,” she said.

Ms Ellery defended the reform timetable, which would see major changes not coming into force until 2026 at the earliest.

“The construction industry has been through so much adversity that if we immediately introduced mandatory inspections, we wouldn’t have the workforce to do it,” she said.

“The jump in costs that will then be passed on to consumers will also be significant.

“Most Western Australian builders behave in a way that ensures continued business.”

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