New South Wales & Victoria Management Rights Spotlight

Limitless potential

despite tight legislation

Aerial panorama of beautiful coastal town Narooma, NSW, Australia

By Grantlee Kieza,

Industry Reporter

Legislation governing strata title properties in New South Wales and Victoria is far more restrictive than in the management rights goldfi elds of Queensland, but industry experts say the potential there is limitless.

Management rights has proved to be a boom industry in the Sunshine State with an outstanding business model that is the lifeblood of the Queensland tourism industry. With 25-year lett ing and caretaking agreements, Queensland operators can get back up to six or seven times the annual goodwill when they sell a management rights business, plus a return of 15 percent to 20 percent per annum and sometimes more.

But agreements in Victoria can be limited to just three years, and 10 in New South Wales. told Resort News that the act governing management rights in NSW meant that “even with great preparation from the developer and full disclosure of the caretaking and lett ing agreements at the contract of sale” there’s still a need to get a majority vote at the fi rst AGM of the building to approve them. Multipliers on earnings are lower than in South-East Queensland resulting in higher returns for those willing to migrate. “Uncertainty has oft en deterred developers from bothering with management rights because they’re at the mercy of a majority vote,” Mr Crooks said. “Despite that, we have managed to do two off -the-plan deals and to my knowledge they’re the fi rst two in the last decade, OneA at Erskineville and Ashfi eld Central, both built by Abacus Property Group.” Mr Crooks said with the recovery from COVID, rising rents and tight vacancy rates, there would soon be greater demand for large residential apartments in NSW. “At ResortBrokers, we’re very optimistic about targeting that,” Mr Crooks said, “but because of the complexities of the laws, the building needs real scale to justify the extra time and att ention required to get a deal through the legislative framework.” He said the resale of existing management rights in NSW was “still very strong”. “We have a property listed in Sydney at the moment with a $500,000 return. It is one of the very few businesses that actually has a 25-year agreement because it was put together before the 10-year terms came into place (in 2003). There are not many properties like that on the market.

“Todd Warner, from our offi ce, has had some great success reselling businesses in Byron Bay with 10-year terms, including Gosamara Apartments, Byron Lakeside, the Oasis resort, Byron Quarter, as well as Smugglers on the Beach in Coff s Harbor.”

Tim Crooks, ResortBrokers

Craig Clark, CRE Brokers

Craig Clark, from CRE Brokers, has been a NSW management rights owner himself, and says lower multiples in NSW are actually a boon for buyers looking for affordable, profitable businesses.

“We have Moby’s Beachside Retreat at Boomerang Beach south of Forster offering a net profit of $680,000 at a multiple of just 3.5,” Mr Clark said. “That’s great value.

“NSW operators in holiday regions have reported that occupancy rates have been very good, and tariffs have increased. Business is strong as people who might have gone to Queensland for their holidays were forced to stay in NSW because of border closures. And they ended up loving the holiday in their home state and decided to do it the next year as well. “But sales of management rights in NSW have been quiet during COVID. A lot of potential buyers from Queensland or Victoria have not been able to travel for inspections. “We expect the sales to pick up soon, though.” Tony Johnson, from MR Sales, agrees. “The operators are very buoyant and from a buyer’s perspective you certainly get a hell of lot more bang for your buck in NSW than in Queensland,” Mr Johnson said.

“The majority of our operators in NSW have had their best summers for a long time and the forecasts are extremely positive. “Byron Bay has done well but it was probably the most affected of all the coastal areas by COVID. Places such as the Tweed Coast and South Coast locations such as Narooma and Merimbula did better, as has the North Coast areas including Forster-Tuncurry. “While there has been a lot of doom and gloom in the media, several properties that I've looked at in New South Wales have actually shown improved figures during COVID because NSW people holidayed at home.” Mr Johnson said the 10-year modules in NSW still meant lower multiples in the State compared with Queensland. “Byron Bay is still the strongest in regard to multiples,” Mr Johnson said, “and you'll see figures anywhere from 3.8 to 4.8. In the other marketplaces such as the South Coast, ForsterTuncurry, Port Macquarie and then north of Byron, short term stuff is 3 to 4.2 depending on the net profit. It used to be that NSW was always about 0.3 or 0.5 below Queensland but I think it's more likely a whole one multiple below that now.”

Lawyer Col Myers, from Small Myers Hughes, has spent more than 40 years as a property specialist, and says management rights in NSW and Victoria has been weakened by changes to legislation.

He said the management rights industry in NSW started around 1999 when developer Harry Triguboff set up agreements with buildings in Sydney, after coming across the concept with his Queensland developments. “I got involved with Harry early in the piece in that I acted for most of the buyers for his management rights,” Mr Myers said. “At that stage there was no term limitation or legislation dealing specifically with management rights in NSW, so we were doing 25-year agreements for caretaking and letting.”

Tony Johnson, MR Sales

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Alex Cook, ResortBrokers

“Then on February 10, 2003, the New South Wales government brought in legislation that limited the term of caretaking agreements to 10 years and it defi nitely put a dampener on things.” Mr Myers said the potential for Victorian management rights had been extremely exciting, and that Alex Cook and Tim Crooks from ResortBrokers and Rod Askew from RCA Business Brokers had done a lot of work there, in what seemed a burgeoning market. “Huge buildings were going up and the developers liked the concept of management rights,” Mr Myers said. “We were trying to make sure that the industry started off properly in Victoria, and that management agreements were specifi cally tailored for each building, and not just att aching a general set of caretaking duties. We had them properly costed, so that the caretaking fee wasn't just something plucked out of the air, but rather based on time and motion studies made by professionals such as Barry Turner and Danny Litt le. “It was coming along really nicely, but the Victorian Government wanted to put some reins on developers about the sort of agreements they could enter into and from December 1, 2021, the government legislated a 3-year term restriction on all contracts

Tweed Coast

entered into by developers during the early period where the developer controls the Owners Corporation. This restriction applies to caretaking and lett ing agreements but, thanks to a campaign run by ResortBrokers, this restriction was lift ed on strata complexes that are used as hotels and serviced apartments. These caretaking and lett ing agreements continue to have no term limitation.”

Alex Cook, from ResortBrokers, led a team of management rights stakeholders in engaging the Victorian government to amend a key section (67B) of the recent Owners Corporations and Other Acts Amendment Bill. The section sought to prevent developers from establishing anything longer than a 3-year agreement. “Without amendment, the legislation would have killed new short-stay operations in residential apartment buildings in Victoria,” Mr Cook told Resort News.

“The legislation was put forward by the Consumer Aff airs Minister and very much geared to protecting the litt le guy (the mum and dad apartment investor) against gouging developers. But the legislation went too far.

“So, we lobbied government. We worked with the Consumer Affairs Minister and got the Treasurer and the Tourism Minister involved and explained that we thought the Bill had a lot of unintended consequences. “We were trying to get letting agreements exempted and it was falling on deaf ears, but where we started getting traction was with the Tourism Minister when we said the Bill would stop new serviced apartments and hotel operators. “If operators only had threeyear tenure, they would not be willing to invest significant funds in furnishing apartments and significant time in hiring staff and marketing buildings. We said ‘you're going to have lower volume and lower quality of room stock coming online and those apartment owners who do want to rent their apartments on a short-term basis will have no option but to go with Airbnb. So, is Melbourne going to become the Airbnb capital of Australia? Do you really want that to happen? “An amendment to the Bill was made saying that the threeyear cap was not applicable on serviced apartments/ hotel-short stay buildings. “The difficulty is that the amendment doesn't really specify exactly what constitutes a hotel/serviced apartment building. “It doesn't say what percentage of apartments need to be in the short-term letting pool.” Despite that Mr Cook is running a campaign for the first big off-the-plan management rights in Melbourne since the Bill was passed. Aspire is a 565-apartment building from builders ICD.

“Tim Crooks and I have spent a lot of time and effort in working with developers to establish new management rights in Victoria and grow the industry, but that is only going to be possible now with buildings that have a short-term focus. “We have secured a foothold, though, and we continue to chip away. “The amendment is a bit grey and it's not watertight, so we need some working examples over the next year or two, and we need further regulation to that amendment.

“Perhaps we might look at going back to government and saying, ‘hey can we specify what a serviced apartment really is so everyone is clear?’ That's probably something we will look at.” Mr Cook said since the Owners Corporation Bill was not retrospective longterm agreements made before it still stood. “I've already resold a fairly large permanent management rights building in Melbourne that opened two or three years ago and I got a good price on it because people know there are limited opportunities moving forward on existing buildings.

“In the two years before COVID, and before the new legislation, we had some really big sales in Melbourne. We sold one building to the Minor group which own Oaks. They branded it Avani. We also sold Australia 108, the tallest residential building in the Southern Hemisphere, to Michael Song of Song Properties. And we sold the management rights to Collins House and Sky One at Box Hill for a developer called Golden Age.

“They all had 25-year agreements that predate the new legislation.”

Mr Cook said prices for Victorian management rights were understandably lower than they were in Queensland, and most of his deals were off-the-plan.

They generally sell at $5000 to $7000 per key for permanent keys and $20 to 25,000 short-term keys.

“In Queensland,” he said, “you're looking at $10 to 15,000 for permanent and anywhere from $30 to $80,000 for short term.”

The town of Forster on the New South Wales north coast.

Lord Howe Island, New South Wales

© stock.aadobe.com

Mobys Beachside Retreat, Boomerang Beach

One of the best Management Rights opportunities in NSW. State of the art facilities in this 4.5 star resort. Prime beachside located only 3 hours north of Sydney in the heart of The Great Lakes region. Award winning design by renowned Sydney Architect. Three bedroom, two bathroom Manager’s apartment, Reception and Management Centre, all on title.

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South Paci c Apartments, Port Macquarie Oxley Cove Holiday Apartments, Port Macquarie

This is an outstanding business opportunity providing owners with huge pro ts and guests with a fantastic resort that continues to see a high number of repeat and new customers. A holiday-only complex opposite the beach and centrally located. The Manager’s residence provides two bedrooms, one bathroom, open plan living, modern kitchen, laundry, private outdoor patio area. Conveniently located just 300 metres from Town Beach and a 5 minute walk to the vibrant Port Macquarie CBD. There are 26 fully self-contained apartments in the letting pool with a choice of 1, 2 or 3 bedrooms.

The Manager’s residence is a spacious and well-appointed four bedroom, one bathroom unit.

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