Imagine if you had purchased a home and you find you must pay for your hot water system via a rental scheme. What would you think? If you buy an apartment, you may be doing just that.
If you purchase an apartment off-the-plan, you are very likely signing up to a convoluted rental scheme for your hot water system. Deep within the wad of paper given to you there is likely a letter that many purchasers do not read or do not understand. It can be quite brief but it proposes to the developer that he should adopt a serviced [gas] hot-water scheme for the Body Corporate. The letter may not mention this will be a ten-year contract and the proposed contract is not usually disclosed.
A serviced hot water scheme is where the gas utility will supply, install, and maintain the water heating plant. There is no cost to the developer. In essence, apartment residents buy hot water by the litre and usually pay a fixed daily rate for gas usage. The gas utility will recover its costs over the contract period via the rates it charges for hot water supply and gas to apartment appliances. When these contracts end the Body Corporate can choose purchase their own water heating plant & negotiate a rate for the gas supply hot in the usual way. Many do.
These serviced hot water schemes are marketed to the developer as they are the decision maker. Here is why one gas utility says the scheme should be adopted;
- Cost-effectiveness. Each of your projects will benefit with a sizeable reduction in capital cost as the … [ hot water] plant outlays are dramatically reduced - ultimately resulting in even more competitive apartment value and pricing.
- Hassle-free. Breakdown problems and maintenance costs are no longer the responsibility of the developer as … [the gas utility] professionally manages the … equipment supplied.
- Attractive to Investors. The running costs of a centralised water heating system would not be included in the Body Corporate levies, making the development even more attractive to apartment owners.
- Appealing to Residents. Valuable space is saved within each apartment when compared to developments using individual electric hot water heaters. There is also the added advantage to the resident of almost unlimited hot water.
- Automated Billing. Hassle-free metering and billing of hot water usage for individual apartments can be carried out entirely by … [the gas utility]… Each customer is then only billed for the actual volume of hot water they use.
- Environmentally Smart. By using natural gas over electric-element hot water on this development, we estimate that a reduction … of greenhouse gas emissions (CO2) will be achieved.
A gas utility will really understand how this scheme works, but it is notable that the benefit list contains a large amount of irrelevant padding. You can have a shared hot water system without a serviced scheme. Gas hot-water plants are very reliable; repairs and maintenance for most body corporates can be expected to be trivial.
The essence of this scheme is the;
- Developer avoids paying for plant they would otherwise need to purchase and install.
- The gas utility “sells” some plant and locks in a customer for 10 years.
- The cost of the hot water infrastructure is passed on to users and this might appeal to investor owners as their tenants pay the burden of this scheme.
The benefits for the apartment owner or end user are much less compelling. This plant is not enormously expensive so it’s hard to be convinced that an apartment is materially cheaper to buy because the increment is likely to be small across many apartments; could it be the real winners are the developer and the gas utility?
by Gary Wilson, Executive Committee member