Changes to the state government's home indemnity insurance scheme mean homebuilders can access greater cover, but the policy still leaves apartment builds out.
The state government has doubled the amount of money available to homebuilders under its home indemnity insurance scheme, but has not extended the policy to apartment builds.
Commerce Minister Roger Cook today announced that homeowners would now be eligible for up to $40,000 for lost deposits or up to $200,000 for incomplete or defective builds.
This is double the initial amounts offered under the scheme, which is compulsory for any new home build with a value above $20,000.
The policy, applied under the Home Building Contracts Act 1991, is designed to protect consumers when a builder becomes insolvent, disappears or dies.
The construction industry has been calling for an increase to the level of cover within the scheme, as build costs skyrocket and pressure continues on contractors.
Business News late last year revealed a spike in indemnity insurance claims in 2020-21, to 483, up from 340 the prior financial year, and a projected figure of 687 claims by the end of June 2022.
Housing Industry Association executive director said the changes were welcomed by industry. "
"Previously in the instance that a builder was to die, disappear, become insolvent or have their license cancelled due to insufficiency of financial resources during the process of building a home, a consumer could access up to a maximum of $100,00 to cover the cost of a new builder taking over their project," he said.
"This decision is an acknowledgement that construction costs have risen significantly. In some instances the previous maximum payout would still leave consumers significantly out of pocket.
"As an industry we support these changes but also hope that this is not a scheme that needs to be relied on heavily."
The insurance scheme applies to homes of three storeys or less, meaning a majority of apartment developments are not covered.
The state government’s statutory warranty period for residential construction requires builders to rectify any defects within six years of practical completion for apartment developments, but consumers are left without recourse if a builder goes under.
In the wake of Jaxon, Psaros and Pindan’s collapse, Australian Apartment Advocacy identified 3,200 residents and 34 buildings that would have no recourse under the statutory warranty period.
This equates to an estimated $15 million in defects.
In December, Business News spoke with apartment developer Richard Pappas, of Celsius Property Group, who called for an extension of the warranty scheme to apartments.
At the time, Mr Pappas said the collapse of these companies “amplified the discrepancy between buying an apartment and buying a house” and made consumers nervous.
Australian Apartment Advocacy founder Samantha Reece said a national survey of 1,100 apartment owners showed that 94 per cent would prefer an apartment with insurance.
Of those surveyed, 80 per cent indicated that they would also be prepared to pay 1.5 per cent on the asking price of the apartment in order to have insurance coverage, via a levy.
Additionally, 10 per cent of respondents felt that homeowners warranty insurance (HWI) should apply for apartments between four and eight storeys, 14 per cent for 9 to 19 storeys and 20 per cent felt HWI should apply to developments 20 storeys and above.
“Following our research, it is clear the current framework is insufficient in protecting apartment owners,” Ms Reece said.
“We are calling on government to review the provision of home warranty insurance to create a more equitable system.”
Ms Reece added that given the state government had an infill target of 47 per cent in Western Australia, they needed to provide adequate protection for apartment owners.
Australian Apartment Advocacy has created an apartment audit and assurance program, designed to undertake inspections of all new apartments during construction to present a case for insurance companies.
“When insurance companies understand that an apartment building represents less of a risk then they are prepared to discuss insurance,” she said.
“NSW has led the way and there is nothing stopping WA from also championing quality builds in the apartment sector.”
Builders are each allocated an indemnity cap related to their level of financial risk, which dictates how many projects they can take on.
Some builders had their indemnity insurance levels slashed by millions of dollars during the stimulus, meaning some were covered to take on less builds than they had already committed to.
This led to calls for greater clarity around the scheme and an increased stringency applied to builders' financial capability required for indemnity insurance.
