The Victorian Government’s plan to ban commissions and kickbacks paid to owners corporation managers has sparked concerns from the real estate industry that the changes could leave property owners and renters facing higher costs.
The Real Estate Institute of Victoria (REIV) has warned that while the proposed reforms would improve transparency and accountability, removing an established source of revenue for strata management businesses could have unintended financial consequences.
The warning follows an announcement by the Victorian Labor Government that it would introduce laws preventing owners corporation managers from accepting commissions or other payments that influence purchasing decisions, including those relating to building insurance and repairs.
The government argues the changes will help ensure decisions are made in the interests of property owners rather than being influenced by financial incentives paid to managers.
However, the REIV says the removal of insurance commissions must be carefully managed to prevent businesses from recovering lost revenue through higher management fees, which could ultimately be passed on to owners and renters.
REIV CEO Toby Balazs said the industry supported greater transparency but warned against implementing significant changes without understanding their financial implications.
“Any potential changes to revenue sources for businesses must be considered and designed with adequate consultation,” Mr Balazs said.
“There are transparency benefits to the government’s proposal, but we’re concerned that if industry isn’t consulted on the details or rollout, it could lead to volatile fee changes and Victorians living in strata properties paying higher fees in a cost-of-living crisis.”
The REIV has begun seeking feedback from its members following the announcement and is urging the government to consult with the industry before introducing the reforms.
Of particular concern is the potential impact on the business models of owners corporation management companies, many of which currently receive commissions associated with strata insurance arrangements.
The REIV argues that removing these payments without sufficient planning could result in higher fees being charged directly to owners corporations, potentially increasing costs for investors and owner-occupiers.
The institute has also pointed to the Victorian Government’s own response to the Thomson review of the Owners Corporations Act, which acknowledged the potential financial consequences of banning commissions.
According to the REIV, the government stated that “a ban could potentially have strong market effects including an increase in the service fees OCs pay to professional managers and other market disruptions.”
The government also indicated in its response that further analysis would be undertaken to determine the impacts of prohibiting owners corporation managers and related entities from receiving financial benefits or rewards from third parties.
The REIV says these concerns reinforce the need for a carefully considered transition rather than an immediate removal of existing revenue arrangements.
The proposed ban forms part of a broader package of owners corporation reforms announced by the Victorian Government, which says the changes are designed to strengthen consumer protections for the one in five Victorians who own or live in an apartment, unit or townhouse.
In addition to banning commissions and payments that influence purchasing decisions, the government plans to examine insurance broker commissions to prevent managers from receiving financial incentives through alternative arrangements.
A dedicated Owners Corporations Taskforce would also be established within Consumer Affairs Victoria to monitor compliance and enforce the new rules.
Further changes would strengthen owners’ voting rights, including requiring at least 21 days’ notice of annual general meetings, introducing penalties for breaches of proxy voting limits and providing between two and four weeks for voting outside meetings.
The proposals build on legislation passed in August that gave owners experiencing financial hardship the right to a payment plan and made it easier for owners corporations to pursue matters through the Victorian Civil and Administrative Tribunal.
Victorian Consumer Affairs Minister Tim Richardson said the proposed commission ban was intended to protect owners from conflicts of interest.
“If you’re paying strata fees, you deserve a manager who works for you – not one pocketing a kickback,” Mr Richardson said.
“We’re banning kickbacks and putting a cop on the beat, so dodgy managers get caught.”
With more than 500,000 strata-managed properties across Victoria, the proposed changes could have significant implications for owners corporation management businesses and the property owners who pay for their services.
For real estate professionals, particularly those managing investment properties in apartment and townhouse developments, the central question is whether removing commissions will deliver lower overall costs or simply shift those costs into higher management fees.
While the government maintains the reforms will improve accountability and protect consumers, the REIV is calling for consultation to ensure the changes achieve those objectives without adding to the financial pressures already facing property owners and renters.
The timing and final details of the proposed legislation have not yet been confirmed in the announcements.