Residents from 131 apartments have been evacuated after a 'large crack' appeared in the Sydney building.

Government, builders and the banks have mucked it up and Australian homeowners and homebuyers are on the hook for big financial pain, experts have told news.com.au in the wake of Sydney’s Mascot Towers drama.

Steve Jovcevski, housing expert at Mozo, told news.com.au people hoping to borrow to buy in a new building in Sydney should be very worried about their chances of getting a mortgage.

“If an issue has come up with a building then the banks won’t lend to buy into the property,” he said.

And it’s a problem that is only going to get worse. Mr Jovcevski said the real scale of the issue will become obvious in the next two years, as tens of thousands of apartments come onto the market all around Australia — many with construction issues. Data suggests almost 54,000 apartments will be completed in Sydney before the end of 2019.

REA chief economist Nerida Conisbee said the apartment quality crisis had come at the worst time, as values were already slipping thanks to the large number of properties coming onto the market.

“There’s been concerns about oversupply for five years and it’s been difficult to get funding (to build or buy),” she said.

“A big problem for people buying off the plan is they’ve put a deposit on, but when it comes to settlement they have problems getting finance.”

Financing is also problematic for people who already own apartments in new buildings, with banks valuing units in buildings that have had problems significantly lower than their purchase price, pushing owners into negative equity that may follow them around for life.

“It affects the value of your property, you’ll get mortgage prisoners stuck in these flats unable to move,” Mr Jovcevski said.

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It’s a story all too familiar for Andy White, who owns an apartment in a building in Melbourne constructed with non-compliant cladding.

In 2017, a fire broke out in the building, destroying two apartments and since then, no one has been able to sell in the block, despite the cladding being replaced with compliant material. One apartment has been on the market without any offers for 18 months.

“You’ve got more consumer protection with a toaster than an apartment,” Mr White said.

“We bought these apartments with the official stamps saying you’re good to go.

“You can’t sell, you can’t put it up as surety for a loan to buy somewhere else. Be wary and do extra homework if you’re going to buy — I would not buy an apartment again.”

A similar situation is being faced by Mascot Towers residents, who have seen their properties become basically worthless overnight.

To add insult to injury, they are now having to cough up an estimated $5 million to pay for the repairs to their faulty building, as the building is outside the six-year major defects construction warranty.

Their only option is to try to sue the builder to recoup their outlay, but this is a high-risk, low-reward play, especially when many construction companies shut down when building is complete.

“This argument that owners should go after these (companies) in court is wrong — they can’t, they’re gone, governments telling people to sue is not reality,” RMIT senior lecturer Simon Lockery. “Do they really want courts filled up for the next 10 years with cases about cladding? That’s going to grow.”

Mr Jovcevski said the government needs to step in and help fix the problem and find a way to have banks and insurers acknowledge when a building has been fixed, rather than being a bad name forever.

“We need the banks and insurers to accept the fact that repair work has been carried out and now we’re going to lend as normal,” he said.

He said without this, insurance costs will be huge and owners will never be able to escape negative equity.

HIGH COST OF BAD BUILDING

Christoph Reithmeier, Director and owner of Dapcor, a remedial building company, said fixing non-compliant buildings was incredibly expensive.

“Generally most defects in new buildings are more related to superficial cracking and noncompliance,” he said.

“The biggest cost to unit owners for defects is waterproofing.”

Mr Reitmeier said there was a massive financial impact on owners for fixing a building that they “may never recover from”.

But he said building it right the first time was cheap, it was the repairs that blow the bank.

“When a building is in the construction phase, the waterproofing component is approximately 2 per cent of construction cost,” he said.

“When you have people living in there then you have a number of other issues to get through, that goes for all the other defects.”

BUYER BEWARE

Mr Reithmeier said buyers needed to do their homework to make sure they weren’t buying big problems.

That’s a similar warning heard from many in the housing market, including REA’s Ms Conisbee, who said buyers should try before they buy.

“For people who are looking to buy an apartment, it is something you do need to consider, make sure you understand what the developer has done before and talk to tenants,” she said.

“If you’re buying from a first-time developer and you can’t get examples, if the apartment is very cheap, there are all those things you need to consider.”

But Dr Lockery said this attitude wasn’t fair, as buyers relied on governments and regulators and builders to do the right thing.

“How can anyone say that it’s fair after these people bought in good faith, with signed off certificates?” he said.

“It’s a more complex situation than that, it’s hard to work out what you’re getting based on what we’re seeing — things like leaky rooms, If there are rules and regulations then the governments need to take responsibility.”

DO WE NEED A ROYAL COMMISSION?

Dr Lockery said it was high time the government called a national Royal Commission into apartment buildings.

“There’s been a fundamental passing of the buck by government, builders, and the regulators,” he said.

He warned that without big action the costs for Australia could run into the billions.

“We’ve had a federal government that’s let all this material in on its watch, a whole load of state governments let the building industry regulate itself,” he said,

“It’s been a failure of policy, a failure of policing what policy there is — the regulators don’t have the teeth to police — and a failure of the building practices.”

David Ross is a freelance finance writer. Continue the conversation @FakeDavidRoss