Slowing population growth & property market

Slowing population growth & property market

 

Recently the Australian Bureau of Statistics warned our population growth is slowing. So does slowing population growth pose a risk to property? Michael Yardney discusses whether this slowdown pose a risk to our economy and pull the rug out from under our property markets?

Why would you want to look after your own management, whether it is a single property or the the strata management of a block. Michael Teys from Block Strata tries to answer that for me in in the process you’ll see, I think, why you would have to be crazy.

Can you lodge a caveat over the property of someone who owes you money? When can a caveat be laid and what can you do if someone slaps one on your property? Find out today.

We can tell you about a country wide prohibition on yet another round of dodgy Chinese-manufactured cabling products that have gone into homes in Australia. Who is at risk and what can you do?

AMP Senior Economist Shane Oliver shocked many people with his prediction of a 7.5% downturn in the Australian property market. He talks to us today and we get to the bottom of his claim.

Smart investors know that if it looks too good it probably is. That could be the case with off the plan purchasers but if you are going to buy off the plan, Shannon Davis explains how best to do that.

 

Transcripts:

Shannon Davis

Kevin:  I was on a plane recently and overheard a conversation. Someone was talking about how they had made a lot of money out of real estate, and the way they had done is that they specialized in buying properties off the plan – this is before they were even constructed or even started construction – and because the developers had to pre-sell a number of the apartment blocks, they were quite prepared to discount the first few just to get some numbers up so that the banks would feel good about it. He was getting an automatic discount at the front, and he would then on-sell them several years later, given the fact that the market would move forward.

That may have been okay a couple of years ago. I wonder what that strategy is like today. It’s a conversation I want to have with Shannon Davis from Metropole Property Strategists, who looks after the Queensland side of the business.

Shannon, thanks for your time.

Shannon:  No worries, Kevin.

Kevin:  Not a bad strategy, maybe 15, 20 years ago, or even 10 years ago, but does it work today?

Shannon:  Well, if you get to put a small deposit down and the market does its thing in the meantime, and you settle two years later in a rising market, then sure, that’s a great strategy.

What we’re seeing more recently, though, is that maybe the concentration, the size of the developments have been a little bit bigger, and sometimes the developer can actually be your competition. If people put down a small deposit, their circumstances change, and the developer is selling off stock at the same time as maybe they want to sell off – shortly after completion – therefore, that discounting actually is a bad thing for the investor.

Kevin:  Yes, it pulls it back down. That strategy I talked about at the start is okay if – as you said – you get in on a low deposit and you can actually achieve a discounted price, and then assuming that the developers sell all the stock on completion, you may be able to turn it over. But as you said, you could be in competition with the developer.

Shannon:  Yes, that’s right – and any other investors who have had a change of circumstances. And especially if it hasn’t gone the right way, no one wants to settle on a property that’s worth less than what they were wanting to buy it for. I think this is news right now for people in Brisbane, Perth, and Melbourne because we’re starting to see in the CBD areas a bit of an oversupply in those capital cities.

Kevin:  If someone wanted to buy off the plan, what should they be doing, what sort of due diligence, Shannon?

Shannon:  I think floorplans are really essential. Some of them are just too poky – say, under 70 square meters for a two-bedroom unit or under 50 square meters for a one-bedroom unit. But you need to remember you’re paying the full cost of construction, your land ratio in that investment isn’t that much, and you’re predominantly with a lot of investors rather than owner-occupiers.

My recommendation is to probably look for something nearby, something that’s comparable but is existing, and you’ll probably find a lot better value.

Kevin:  What sort of pressure is this going to put on developers? As I said at the outset, in many cases, they have to get a certain number of sales up before the bank will even fund the project. Therefore, there has to be a bank of people who will invest in these properties.

Shannon:  Yes, definitely. They’re mainly looking for the tax deduction of buying new. Maybe there’s the First-Home Owners Grant with it, as well. But I think buying for tax deductions, rebates or incentives like that is a poor reason for investment.

Developers won’t want you compare to the existing market – they’ll say that it’s different because “It’s in this precinct and we have this rooftop pool,” and everything like this – but if you compare a two-bedroom unit that’s new and off the plan to what’s in the same suburbs that’s existing, sometimes there is a big disparity in price, and that’s something buyers need to be aware of.

Kevin:  What you’re saying – bottom line here – is that you don’t like off the plan purchases; you’d much rather look for something more established, close by.

Shannon:  Yes. It’s better land ratio in the investment – over time, you don’t pay for the cost of construction; the land rises – and often they’re more generous in scope, size, and visitor parking, and you can add value. There’s very little value you can add to a brand-new off-the-plan apartment.

Kevin:  I read some statistics just the other day – just in closing – too, that quite staggered me about the number of people who are now investing in properties both for investment and also to live in.

I think the figures were something like 25% of all properties in Melbourne are now units, over 30% of all properties in Sydney are now units, but in Brisbane, we seem to be lagging behind in that market because only about 8% of all the properties in Brisbane are units.

Does that mean that we’re going to be seeing more units come into that market if we’re going to follow those trends, Shannon?

Shannon:  Yes definitely. The new town plan keeps Brisbane mainly as a low-density cap city, but there are lots of areas of higher density around transport modes and shopping precincts. Where those areas are, there are going to be a lot more balconies rather than backyards. It’s just going to be something that Queenslanders and Brisbanites will have to get used to.

Kevin:  Always good talking to you, Shannon. Thank you very much for that insight. Shannon Davis from Metropole Property Strategists in Brisbane.

Thanks for your time, Shannon.

Shannon:  No worries, Kevin. Thank you.

 

Michael Yardney

Kevin:  Recently, the Australian Bureau of Statistics warned that our population growth is slowing. I’m just wondering what this slowdown is going to do. Could it pose a risk to our economy? Maybe pull the rug out from underneath our property markets?

Let’s find out. Michael Yardney from Metropole Property Strategists has a view on this.

Hi, Michael.

Michael:  Hello, Kevin.

Kevin:  Michael, I think you may have written about this in your blog, Property Update, haven’t you?

Michael:  Yes, I did. It should be on the mind of all smart property investors.

Kevin:  What do the population figures show?

Michael:  Firstly, the Australian Bureau of Statistics estimates our population growth is now at about 1.4% per annum. That’s much lower than it was a while ago, and the whopping majority of those people are actually in the four big states – New South Wales, Victoria, Queensland, and Western Australia.

Kevin:  This is the lucky country; why don’t they want to come here? How much is it slowing?

Michael:  It’s really due to lower migration. We still have more natural population growth – we’re making more babies than people are dying – but people aren’t coming here as much, migration has slowed down. We’d only added about 143,000 people from overseas last year.

Kevin:  Has it got anything to do with the end of the mining boom?

Michael:  Yes, you’ve picked that well. The mining boom brought lots of new migrants to Australia, and the figures from the Bureau of Statistics show the impact of the mining investment slowdown has made the resource focused states – particularly Western Australia and the Northern Territory – drop in migration considerably. In Western Australia, it’s dropped 71% over the last couple of years.

Kevin:  Goodness, gracious. Something is obviously having an impact there. Is it a problem, Michael?

Michael:  Let’s put it in context. Australia’s population still increased last year by more than 316,000 people. If you look at the world in general, we still have one of the fastest growing populations amongst the advanced economies. It is well above the long-term averages, but over the last couple of years, we’ve just had massive population growth related to the mining boom jobs creation needing people to come in to support the boom.

Kevin:  Before we get to its meaning for property, Michael, what’s it going to do to the economy?

Michael:  I think there’s some positives and negatives, Kevin. On the positive side, what it has done is keep unemployment on the low side. Remember a while ago when people were talking about an unemployment rate of 8%, 9%, or 10%? Well, that didn’t really happen.

The other positive is that it’s going to keep our Australian dollar on the low side, and I think this has a couple of positive impacts. First of all, we’re going to have more overseas visitors coming here because a low Australian dollar is going to be cheap for them. That’s good for our economy. It also probably means that Australians are going to travel more extensively domestically, rather than overseas. That’s also good for our economy.

I think the last upside of our slower population growth causing a lower Australian dollar is that Chinese capital is still going to come in, and they’re going to look for investments locally.

On the downside, a slower population growth means we’re going to have a slower economy, which – depending on which way you look at it – is probably going to leave interest rates on the low side, maybe even having to drop a bit to stimulate the economy, because we haven’t got more people consuming.

Kevin:  What’s the direct impact to property, Michael?

Michael:  Possibly the biggest impact from population growth undershooting expectations is that during our recent housing boom, we’ve been building lots more houses, and there are so many on the drawing board and so many coming out of the ground, and they’re for people who may not even show up. That’s potentially one of the issues in some locations in Australia, particularly in the CBD and the off-the-plan and a lot of those new house and land package areas.

Kevin:  The bottom line, Michael?

Michael:  We’re told our federal government is keen to get us back into surplus from having a budget deficit, but a slower population growth, slower economic growth, is going to make that a lot harder for us.

I think some segments of the property market are going to find themselves in surplus. This happens every property cycle, doesn’t it Kevin?

Kevin:  Yes, it does.

Michael:  Times are changing, so I think one is just going to have to look more carefully at which areas are going to have economic growth, which areas are going to have wages growth, and know that it’s not going to be all over Australia. Our population growth is fragmented, creating jobs growth fragmentation, creating economic and property growth being fragmented into different segments.

Kevin:  So the answer is: keep listening to Real Estate Talk, and keep reading Michael’s blog, PropertyUpdate.com.au.

Michael:  Thanks for that great plug, Kevin.

Kevin:  Thanks, Michael. I’ll talk to you again next week.

Michael:  My pleasure.

 

Shane Oliver

Kevin:  Let’s get a good insight as to what’s happening in the property market. Shane Oliver is Chief Economist with AMP and joins us.

Shane, thank you for your time.

Shane:  My pleasure.

Kevin:  Interesting market around Australia. We probably have so many markets, and I see that you’re predicting a possible fall in the Sydney and Melbourne markets in the coming years.

Shane:  It certainly is an interesting property market around Australia at the moment, and you’re right to say that it’s very hard to generalize because we have several capital cities – particularly Perth, Darwin – that are seeing price falls, whereas at the other end, you have cities like Sydney and Melbourne that have been seeing very strong gains.

My feeling is when I look at the impact of the measures by APRA, the bank regulator, to try to slow the property market down, those measures seem to be starting to impact. I think we’re really seeing the heat coming out particularly from the Sydney property market, and I think as we go over the next year or two, that’s really going to slow down, and we’ll probably see price declines sometime around 2017.

Kevin:  Some commentators are saying that any declines that you’re foreshadowing, if they come into effect, are really going to bring us back to what would be a normal market. What is your feeling about that?

Shane:  I think there’s no doubt that the Sydney and Melbourne property markets have become abnormal. They’ve become way too hot. Earlier this year, we were seeing auction clearance rates around 80%, which is way, way too high. Investors were playing a huge role in driving those markets, and price gains were pushing up to around 20% particularly in Sydney, so the market had become too hot, too speculative.

It really does need to cool down. I think in just a couple of years, prices in Sydney had gone up by about 40% which is way, way over the top, way out of line with what we’ve been seeing elsewhere in Australia.

Kevin:  How would you assess the moves by APRA? Have they been effective?

Shane:  I think the moves by APRA have been effective. They first announced that they were going to do something about it late last year, and nothing much happened through most of the first half of the year but then as time wore on, particularly when you got to June and July, it was clear those measures were really starting to bite, with many banks increasing mortgage rates for investors, announcing lower loan-to-valuation ratios and also tougher income tests.

What we can see – it’s still early days –is that lending to investors is really starting to cool in the last few months, so I think the APRA measures have helped even though it took a bit longer than one might have expected.

Kevin:  We’re already seeing some of the auction markets, particularly Sydney and Melbourne, starting to slow down a bit, conversion rates or sale rates not quite as high under the hammer. Is that just seasonal, or do you think it’s just a case that buyers are maybe being a bit tougher with their negotiations?

Shane:  I think there are a couple of factors going on here. I think the number of investors out there looking for properties has cooled down. I think that those who are out there are being a lot tougher, and the price gains of the last few years have seen a big increase in supply that homebuyers have felt now is a good time to get our house on the market. That’s also impacting.

All of these things are coming together, and the Sydney auction clearance rate has now been below the 70% level for about five or six weeks in a row compared to earlier this year when it was consistently above 80%. It looks to me like it’s well and truly cooled down.

Kevin:  Of course, this is supposed to be the peak selling time of the year. Is that cause for concern as we head into 2016?

Shane:  I think there’s no doubt that the slowing we’re seeing would be a concern particularly for real estate agents and for those homeowners who do want to sell, but if you’re a homebuyer, it’s good news.

It’s also good news for the Reserve Bank, I guess, who was worried that the Sydney and Melbourne property markets were too hot and that it was going to cause some sort of imbalance in the economy. Now that it’s cooling down, it actually gives more scope for them to potentially consider cutting interest rates further.

Yes, some would be not enjoying this and would rather see stronger markets continued, but I think in the interest of national stability and giving the Reserve Bank more flexibility on interest rates, a cooling is what we really need.

Kevin:  I’m talking to Shane Oliver, Chief Economist with AMP. Shane, your advice for investors as we enter into what is probably a fairly unpredictable market, what approach do you think property investors should be taking?

Shane:  I think property investors at this stage really need to be a lot more cautious – depending on where they’re looking at, though. That’s the first thing to note. If you’re thinking of investing in Sydney or Melbourne, I’d be very cautious at the moment. In fact, I’d probably be staying away.

In the other cities, though, you can probably still afford to have a look around. The Brisbane market, to me, looks like it might be picking up a little bit, getting a bit more momentum in it, but don’t expect it to get overly strong because those APRA measures will also weigh on investor buying in the Brisbane market along with the other capital cities.

It’s really a time to take your time, get out there, kick the ties, make sure you’re getting into an area where there is going to be good tenant demand, you’re not going to have vacancy problems, and also just don’t buy in areas that have recently seen rapid price gains because I think those rapid price gains could evaporate more quickly.

You really should be looking at areas that haven’t participated in the strength that we’ve seen, particularly in Sydney and Melbourne, and where rental yields are a lot more attractive than you see in Sydney and Melbourne.

Kevin:  We’re always aware, of course, that the property market is a cycle. Where do you think we are in the cycle, or is that too hard to generalize on an Australian property market?

Shane:  If you look at the national average, price gains have been rising for the last couple of years now, obviously led by Sydney and Melbourne. That’s now turning down, so I think we’re in the downturn phase at a national level.

In Sydney and Melbourne, though, that downturn is probably going to be more pronounced. In Brisbane, though, I think we’re still in the earlier phases of modest growth. Price growth in Brisbane has been running around 4% to 5%, and I suspect over the next few years, that might well continue. Whereas if you flip across to the other extreme, say, Perth and Darwin, they’re still being affected by the mining downturn. They’re seeing price declines, and I think those price declines probably have a bit further to go.

You can look at the national figures and come to one conclusion – it looks like we’re in the early rollover or downturn phase or slowdown phase – but you really have to look at it city by city because they do vary so much around Australia at the moment, which in fact, is an unusual occurrence. Normally, they’re a bit more correlated.

Kevin:  I noticed too, Shane, the banks moving to increase interest rates.

Shane:  That is largely in response to measures that APRA, the bank regulator, put through a month or so ago to ensure that banks have higher capital set aside for any lending into housing. Of course, as soon as they have to put more capital aside, it means that the cost of funding goes up.

It’s like a business running where it has a higher cost. They’ve thought, “What do we do? We could either cut deposit rates, or we could increase our prices on our mortgages.” Of course, they’ve chosen to do that.

What it does do, though, is add a bit more uncertainty to the property markets – in the short term, it could be a bit of a dampener – but I think it also puts pressure bank on the Reserve Bank to consider cutting interest rates again because the last thing Australia wants at the moment is higher interest rates for existing homeowners. I think that would be a really bad thing, so hopefully the Reserve Bank will be attuned to this and consider cutting interest rates in the next month or so.

Kevin:  In the past few years, on Melbourne Cup Day, they seem to have done that. Maybe they’ll do it again this year, Shane.

Shane:  That’s right. The Melbourne Cup Day does have a good track record. Not last year, but for all the years before – I think most of them – we have seen a move either up or down on Melbourne Cup Day. My betting is that they probably will put through a cut this coming Melbourne Cup Day which is November 3rd, I think it is.

Kevin:  That’s right. Indeed, it is – not too far away.

Shane Oliver, thank you so much for your time. Shane, of course, the Chief Economist with AMP. Shane, thank you.

Shane:  My pleasure. Been great to talk to you.

 

Garth Brown

Kevin:  An interesting question was posed about caveats that I wanted to cover as someone was just asking what are the circumstances around someone putting a caveat on your property or, in fact, you putting a caveat on someone else’s property? What does it really mean?

I have to say up front, our program does go right around Australia, and state to state, it does vary, so we’d always suggest that you check with your state expert. At the end of this podcast, the text version will give you the state links for each of the state authorities.

Our go-to man is Garth Brown from Brown & Brown Conveyances, and he joins me.

Hi, Garth.

Garth:  Hi, Kevin.

Kevin:  Garth, what is a caveat?

Garth:  A caveat is like an injunction on title. It actually freezes the title so that no one can deal with that title – not even the vendor or purchaser – without the consent from the person who placed the caveat on title. This is really an external third party controlling the title.

Kevin:  When can you lodge a caveat?

Garth:  You can lodge a caveat if you have what’s known as a caveatable interest or an equitable interest or a legal interest in property. I know those are convoluted terms there. It’s when you have exchanged contracts, the purchaser can place a caveat on the title.

Kevin:  You have to have an interest in the property. Is that the barometer?

Garth:  Yes, an interest in the property, whether a legal or equitable. You have an equitable interest once you sign a contract in exchange as a purchaser, and the mortgagee, anyone who’s lending money to help someone to buy a property.

Interestingly, there are agreements, though, that can occur between vendors and purchasers when it comes to agreements for supply of goods or services. The vendor can agree with someone who’s supplying some sort of service that the security of their charges – and it has to be in the agreement – is secured, and the security is the actual property itself. It’s whereby the vendor agrees that any liabilities are secured in their agreement via a caveat on title. That is allowable.

Kevin:  Why would you want to put a caveat on a property? What are the circumstances? Is it to freeze the interest?

Garth:  Yes, just to freeze it.

Kevin:  That freezes your interest in it, Garth, is that correct?

Garth:  That’s right. Some people have tried it where someone has done some tiling work or work on someone’s home. The vendor has refused to pay their account or some sort of work on their home, so what they’ve done is just gone and lodged a caveat on title.

Kevin:  Can you do that?

Garth:  No. You can do it, but legally it won’t stand up. It’s just really to bluff or shock the vendor to pay up.

Kevin:  In the event that someone has actually put a caveat over my property, what do I do?

Garth:  What would happen then is that the lands office would office a notice to you, as the owner, that a caveat has been put on your title so that you’re aware of what’s going on with your title. Then what you can do is apply for a lapsing notice. That’s where you fill in the forms and send it back to the lands office, and then that puts it back on to the person who actually put the caveat on title, who has 21 days to go to the Supreme Court to extend the length of time of that caveat.

Kevin:  You really have to take action fairly quickly. You’re saying within 21 days of being notified.

Garth:  Virtually, I would say within the first week. Get on to it straightaway so that you can get it off title.

Kevin:  If I were going to auction, as an example, and someone put a caveat on my property, would that actually stop the auction from happening?

Garth:  It could, actually. Potentially, it could. In that situation, you’d put a special condition into the contract that the successful purchaser would have the right to rescind if the caveat was delaying settlement.

Kevin:  Any settlement would be subject to that caveat being lifted anyway, I’d imagine.

Garth:  Definitely. You’d want to have that in writing.

Kevin:  You still go ahead with the auction, but obviously, it’s going to cause a few bumps in the road, that’s for sure.

Garth:  Definitely, yes. You need to be aware of it, have special conditions to protect you, so you can get out of the contract if you can’t complete because of the caveat. There’s another approach where you can go straight to the court directly and request for the caveat to be deleted, and avoid the lapsing 21-day lapsing notice. It takes maybe a bit of time and money, but it probably would be the quickest way in order to get a settlement across the line.

Kevin:  Okay. As I said at the opening, there’s different legislation in different states. I suggest you go to the text version of this interview and check out the governing bodies behind caveats in Australia in these states and territories.

Garth Brown from Brown & Brown Conveyances. Thanks for your time, Garth.

Garth:  Thanks, Kevin. Appreciate it.

 

Michael Teys

Kevin:  There’s an old saying that people who are really good at their job make the job look easy. That’s probably why some people believe they can do the job even better. But when it comes to managing a strata unit, I think you have to be really careful.

Michael Teys joins me. Michael, of course, is from Block Strata.

Good day, Michael.

Michael:  Hi, Kevin. It’s nice to be with you again.

Kevin:  Thank you for your time. Michael, you’d have to be foolhardy to do this, wouldn’t you? Why would you want to do it?

Michael:  Yes, absolutely you’d have to be foolhardy, but I think a lot of people get into a habit. Some people took this on, perhaps, because they were semi-retired. But it’s a rare beast indeed that can withstand the complexities of the current strata laws, wherever you’re based in Australia. There are safety issues, there are privacy issues, there are discrimination issues, well beyond the basic strata law issues.

Kevin:  We’ll have a look at a few of those in a moment, but I think in some cases, it’s a matter of last man standing. I know that on a number of occasions, people I’ve spoken to have said, “Well, no-one else will do it. I might as well do it,” or “I have to do it.”

Michael:  Yes, I hear that view from time to time, but I think as the various state governments undertake review – there are strata law reviews going on up and down the east coast of Australia at the moment – I think these days, they pretty quickly come to the view that it’s time to get a professional in.

Kevin:  Let’s have a look at a couple of the reasons why you should get a professional in. Where do you see some of the really big mistakes being made, Michael?

Michael:  Look, the biggest mistake is in failing to undertake the repairs and maintenance that a strata entity has to undertake in a timely way. There are cases bouncing around where mold has started because repair and maintenance cracks haven’t been fixed quickly. That leads to tenants leaving and damages cases.

Safety – fire safety – is a big issue. People have died recently in strata title buildings, although admittedly newer buildings that are unlikely to be privately managed. Nevertheless, these are very real risks.

One of the real risks of any apartment building at the moment is the incidence of a meth lab – believe it or not – because that can be done in a domestic kitchen.

These things are rare, but they do happen, and you don’t want that on your watch as an individual who is doing this. It’s a very thankless task. You don’t make a lot of friends by undertaking strata management.

Kevin:  You probably bring on more enemies than anything else. What about liability if you were to take it on? How liable are you?

Michael:  The laws are different in each state, but the general consensus is that so long as you’re not reckless, then you’ll be okay. The problem is I see cases of recklessness. When you refuse to get a fire certificate, that’s recklessness. When you refuse to do a safety report, that’s recklessness. It’s going to be the extreme case of a death on the common property that is going to lead to some sort of prosecution and bring these chickens home to roost.

I think more than anything – more than liability – is a sense that this is just too hard, and why should I, as the willing worker, take the burden for the building that is getting a free carry?

Kevin:  In a lot of the cases, too, the most urgent matter is the one that’s going to be attended to, as opposed to having some kind of a management plan in place.

Michael:  Correct. The other thing that I think is common with self-managed schemes is that they’re presently being done by older people. They might have been 60 and semi-retired when they moved into the apartment, but they’re now approaching their 80s, and things like the complexities of laws and the demands of people become just a little bit harder to bear as we get older.

Kevin:  As legislation comes on, does it become harder to manage these on your own than it would have been, say, a decade ago?

Michael:  Absolutely. Once upon a time, you would have had a meeting in someone’s lounge room, someone would have belted out a set of minutes, there’d be a very simple bank account, and you’d pay the bills when they come in.

These days, you need to have certificates issued so that when people are buying in and out, they get a certificate from the strata about what rates and taxes and other things are due on the apartment. There are liability issues that are carried with that. There are fire safety issues, there are workplace health and safety issues. Privacy laws are being used in strata at the moment as a new weapon of warfare.

Kevin:  In what way, Michael?

Michael:  I’m acting for a couple of managers who have been caught where they’ve disclosed details about a particular unit owner to other people. In one case I’m in at the moment – and I’m actually acting for the owner –the strata manager alleged that this person was bipolar and did so in an e-mail. There’s an action there with the Human Rights Commission, and there’ll be a substantial fine imposed.

That strata manager is acting as the agent of the owners corporation. I guess that’s a case in point where you can get into trouble even when you are professionally managed, let alone when you’re not.

Kevin:  If you’d like to know a little bit more, and maybe you need a management plan in place, I’d suggest you make contact with Michael and his team at Block Strata.

Michael, what’s the web address to get in touch?

Michael:  BlockStrata.com.au

Kevin:  Or you can call 02 9562 6500.

Michael Teys, thank you so much for your time.

Michael:  Thank you, Kevin.

 

Malcolm Richards

Kevin:  Here’s a cautionary warning for anyone doing, I guess, home renovation or anything to do with electrical work around your home. It’s just been brought to our attention that there’s a statewide prohibition on a faulty batch of Chinese-manufactured cabling. This is not the first time it’s happened. I’m talking to Malcolm Richards, who is the CEO for the Master Electricians of Australia.

Malcolm, thanks for your time.

Malcolm:  Good morning, Kevin.

Kevin:  This is, in fact, the fourth occurrence. Is that right?

Malcolm:  That’s correct. We saw the original major interruption with Infinity Cable a couple of years ago, where we had 38,000 kilometers of this cable around the country fail the durability test, and we’re starting to see some of that cable play up now as a lot of it is trying to be removed.

Subsequent to that, the regulators around the country have done some proactive testing of other products, and we’re quite pleased to see that before it got too far, they’ve found another product and banned its sale and are subsequently testing it further to have it removed from the marketplace.

Kevin:  Is this the one you’re telling us about now or is this, in fact, a fifth one?

Malcolm:  No. This is the fourth one we’re talking about now.

Kevin:  You caught it fairly early in the run.

Malcolm:  Yes. I understand that it was proactive testing, and this cable has been found to be faulty and failed a similar endurance test. SKL Cables is the brand. The difference between this cable and some of the previous cables is this this cable, we understand, is primarily sold through the wholesaler chain direct to electrical contractors, not readily available to the general public, such as Infinity or Olsent branded cable was at the time.

Kevin:  How many properties do you think could be affected by this?

Malcolm:  This is certainly Australia-wide. We don’t have the figures yet. The initial reports are that it’s a much smaller pool because they found the cable proactively through some industry testing. The benefit to consumers, in this case, because this cable is sold to electrical contractors, is they have an extra layer of protection.

Unfortunately, with Infinity cabling, with the cables sold direct to the public, if you purchased that cable and didn’t use a licensed electrician or you did use later because you were the purchaser of the product, you don’t have protection under the Australia Consumer Law from the electrical contractor.

If you engaged a licensed electrical contractor to install and purchase the products on your behalf and anything’s gone wrong with that product, you can claim back on that electrical contractor to make good, which is an extra layer of protection. Regardless of the company importing the cable going broke or the wholesaler not funding the response, the relationship between the customer and the contractor is solid, and the contractor is bound to fully make good for the customer.

Kevin:  What’s going to happen from here? Is it the importer or the organization will be tracking back through the electricians who’ve used this faulty cable?

Malcolm:  In this case, the company that imported the cable will contact the wholesale outlets, who will then contact the electrical contractors, who will subsequently contact the customers to advise them that the wiring in their homes may not be up to standard.

There is no urgency or no hurry – it will take a few years to break down – so we do have time to plan a response, go into those homes, and provide a rectification, which will make sure those homes are safe. The benefit, in this case, is we do have a good pretty precise list of exactly who the cable is sold to, so they can directly track all of the cable back down and have it repaired.

Kevin:  Worst-case scenario, in a couple of years’ time when it does break down, what do you anticipate will happen?

Malcolm:  With all of these cables, the problem is with the thermal polymers in the cable, which means it loses its durability over time. Some four, five, six years down the track in a hot ceiling, we will find the cable will become rigid and brittle, and if it’s disturbed by rodent or someone crawling through the ceiling, putting a knee on the cable, the insulation will crack and probably separate from the cable, exposing the live wires, which can lead to a fire or even worse, an electric shock for someone in the ceiling.

Kevin:  I guess the message here for anyone looking at doing any kind of renovations is that they should be using a qualified electrician.

Malcolm:  Absolutely. That extra layer of protection… I’m sure with a plethora of do-it-yourself shows on television and radio now, people get inspired to go and renovate and try to do as much as they can to keep their costs down. When we’re talking about electricity, it’s a very dangerous product, and to make sure it’s installed properly and it’s all tested is one very good reason to use a licensed electrical contractor.

Now with a large volume of imported product and the quality of product being under question, there’s a really strong reason to make sure you only use a licensed electrical contractor to have that part of your job done.

Also, you should consult very early on in the project because there are some fantastic new technologies available, which you may want to incorporate into your renovation to make your place that extra bit special. Again, strongly advise the use of a licensed electrical contractor for any electrical work during your renovation.

Kevin:  Your organization, MEA, the Master Electricians of Australia, is that the peak registered body that everyone should be registered with?

Malcolm:  Absolutely. In addition to being a membership association, we also run an accreditation program where we externally view electrical contractors’ businesses and issue them accreditation based on their safety, their quality, and their environmental awareness.

If anyone out there is unsure which licensed electrical contractor to use, they can go to our website and find their local fully accredited master electrician who is fully licensed, insured, and has passed an external high-level test to ensure they’re the best quality contractor in the market.

Kevin:  Very good, Malcolm. I want to thank you for your time and bringing this to our attention.

Malcolm Richards, CEO for Master Electricians of Australian. Thanks for your time.

Malcolm:  Thanks, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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