Why management rights businesses are cheaper in NSW

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Why management rights businesses are cheaper in NSW
© Andrey Popov / Adobe Stock

Certainty equals value in business and because of clearer and tighter regulations in Queensland, Management and Letting Rights businesses are worth significantly more in the Sunshine State than they are south of the border.

Trevor Rawnsley, the CEO of the Australian Resident Accommodation Manager's Association, says the fundamental differences between Management Rights Queensland and NSW and lies in the legislative differences.

“Property law is very different in each state,” Mr Rawnsley said, “and form follows function so Management Rights operate in a reflection of the laws.

“The laws in Queensland are very restrictive and very prescriptive, therefore the laws around Management and Letting Rights in Queensland are very precise and clear, whereas they are not so clear in NSW.

“There are a couple of key fundamental differences and one of the main ones in NSW is that the term of agreements have been limited to 10 years for some time. In Queensland they are 25 years.

“The multipliers used to value those businesses in Queensland are therefore higher resulting in higher prices for Queensland businesses.

“A building in New South Wales might run into a multiplier of 3 1/2 to 4 which is still a high goodwill value for a business – but the very same type of building – if it was in Queensland would probably achieve a multiplier of 5 1/2 to 6.

“Longer term and more clearly defined rules give MLR business in Queensland greater certainty. That's why attacks on the term for resident managers in Queensland is such a huge issue.”

Lawyer Col Myers, from Small Myers Hughes, has spent more than 40 years as a property specialist, and says the Management Rights industry in NSW 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 of resident managers 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.

“Then on February 10, 2003, the New South Wales government brought in legislation that kept the term of caretaking agreements to 10 years and it definitely put a dampener on things.”

That dampener remains though lower prices mean greater potential returns for some buyers.

Tim Crooks, the Director of New Developments at Resort Brokers, 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 letting agreements at the contract of sale” there’s still a need to get a majority vote at the first AGM of the building to approve them, and even then the agreements are limited to 10 years. As a result multiples on earnings are substantially lower than in South-East Queensland when it comes to Management Rights sales.

“This uncertainty has often deterred developers from bothering with Management Rights because they’re at the mercy of a majority vote,” Mr Crooks said.

Despite that, his company managed to do two off-the-plan deals – OneA at Erskineville and Ashfield 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 Resort Brokers, 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 attention needed to get a deal through the legislative framework.”

He said the resale of existing management rights in NSW was “still very strong”.

“Todd Warner, from our office, 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 Coffs Harbor.”

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.

He said NSW operators in holiday regions had reported that occupancy rates had been very good and tariffs had increased during COVID because 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.

Mr Myers said more and more Australians were choosing to live in strata apartments and it was very much the way of the future.

He said statistics showed that almost one in six people in NSW lived in an apartment – nearly double the percentage of Victorians and well above the Australia wide percentage.

Governments, both State and local, were pushing people into high-rise living, he said, and population growth in the cities meant that more and more high-rise developments were inevitable.

Management rights were the best way to run those buildings, he said.

“My takeaway message from these statistics,” Mr Myers said, "is that if you ever wondered where the future lies, jump into anything strata related now.”

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