NSW government considering banning strata manager commissions to cut apartment costs
Consensus Summary
The NSW government is evaluating a proposal to ban commissions paid to strata managers, a move that could save apartment owners hundreds of millions over the next 15 years by reducing costs and increasing transparency. The current system allows managers to earn commissionsâsometimes as high as 20% of insurance premiumsâon services like insurance and energy contracts, creating conflicts of interest that push up prices for residents. Over 1 million people live in strata properties in NSW, and by 2041, half of Sydneyâs homes are expected to be strata-titled, making the issue critical for housing affordability. The NSW Productivity and Equality Commissionâs report, backed by over 550 submissions, found commissions distort decision-making and erode trust, with some managers earning up to 25% of their revenue from these payments. While the Strata Community Association supports phasing out commissions, industry resistance remains, with some managers arguing it would harm their business. The government is considering four reform pathways, including a full legislative ban, but has not yet committed to action. Critics argue the system creates hidden costs and opaque pricing, while supporters emphasize the need for fairness and competition in an increasingly dense housing market.
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Key details reported by multiple sources:
- NSW Productivity and Equality Commission report recommends banning commissions to strata managers, citing conflicts of interest and inflated costs
- Commissions for strata managers in NSW can reach 20% of insurance premiums, with a $50,000 policy generating up to $10,000 in commissions (split between brokers and managers)
- Over 550 submissions were received during consultation on the report, with strong support from apartment owners for reform
- More than 1 million people live in strata properties across NSW, and nearly half of all homes in Greater Sydney are expected to be strata-titled by 2041
- The commission estimates scrapping commissions could create $333 million in benefits to apartment owners over 15 years through lower premiums and competitive pricing
- Strata managers can receive commissions of 15 to 25% of their total revenue in some cases, representing their entire profit margin
- The NSW government will carefully consider the commissionâs recommendations, including a potential legislative ban on commissions
- The Strata Community Association NSW has announced members will phase out insurance commissions as a step toward greater transparency
- Peter Achterstraat is the NSW Productivity Commissioner who led the report recommending commission reforms
Points of Difference
Details reported by only one source:
- Strata manager commissions can create a âperverse incentiveâ where managers may avoid pursuing better-value deals if it reduces their income
- A Sydney apartment owner (Lui Timbano) is pursuing legal action in the NSW Civil and Administrative Tribunal, alleging his strata manager exceeded agreed commission limits, with insurance costs dropping from $28,000 to $21,000 annually after switching brokers
- Strata lawyer Allison Benson noted some strata managers took âhigh offenceâ at the suggestion of banning commissions, insisting it would ruin their business model
- The report highlights âvertical integrationâ where strata management companies are owned by or closely linked to service providers they recommend, with disclosure rules found insufficient to mitigate conflicts of interest
- Developers often select a strata manager before apartments are sold, locking in arrangements for incoming owners and creating conflicts of interest if issues like building defects arise
- Peter Achterstraat stated the issue needed to be solved âsooner rather than laterâ due to apartments being the only affordable housing option for younger first-time buyers
- A case study in the report showed a strata managerâs insurance commissions grew from $8,000 to $27,000 annually over four years despite no material change in work required
- A resident submission described a repair quote from a maintenance company linked to the strata managerâs conglomerate, raising concerns about vertical integration
- The NSW opposition spokesperson for fair trading (Tim James) said any potential ban on commissions should have a âcompelling and comprehensive basisâ
- David Glover from the Owners Corporation Network Australia called commissions âhidden paymentsâ that create incentives for strata managers to sign up to more expensive contracts
- Glover stated owners donât know what theyâre paying their strata managers, as commissions are not transparent and ultimately come out of ownersâ pockets
- The ABC highlighted that strata managers are appointed by ownersâ corporations to manage daily operations of apartment buildings, with commissions legally allowed for new contracts or insurance products
Contradictions
Conflicting information between sources:
- The Guardian reports Achterstraatâs estimate of $300m in benefits over 15 years, while the SMH reports $333m in benefits over the same period
- The Guardian states the commission received over 550 submissions, but the SMH does not specify the exact number beyond âmore than 550â
- The ABC does not mention the specific figure of 20% commissions on insurance policies (mentioned in SMH and Guardian)
- The Guardian highlights Achterstraatâs urgency to solve the issue âsooner rather than laterâ due to housing affordability, while the SMH focuses more on structural concerns like vertical integration and developer ties
- The SMH includes a detailed case study of a strata owner (Lui Timbano) pursuing legal action, which is not mentioned in the Guardian or ABC
Source Articles
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