More about high rise building insurance

I noted earlier this week that people (including me) were generally unaware that the compulsory insurance against structural defects that is taken out by builders constructing houses did not apply to strata structures over 3 levels high.  

I see some history of this is in an article at the ABC, which also indicates that high rise apartments are very profitable for developers (at least, if they can sell them all):

Prior to 2002, this insurance was a mandatory feature of all domestic building contracts.
HIH Insurance Limited, a major provider of Home Warranty Insurance, was placed into administration in March 2001 and left the insurance market.

In 2002, in response to a failure from other insurers to fill the gap left by HIH, State Governments agreed to exempt builders from providing this type of insurance in buildings above three stories.

For high-rise builders, who don't need to qualify for this insurance and also had the incentive of rising land prices, speculative apartment developments started to look like attractive investments as they didn't need to qualify for this kind of insurance.

Take the now infamous Opal Tower.

Publicly available documents put the cost of this development at around $215 million. If all 392 apartments were sold at their advertised price of between $800,000 and $2.5 million each, the developers have potential to make a profit on this project of around $165 million dollars, or a 77 per cent return on their investment.

Or take the Prima Pearl skyscraper in Melbourne.

The builder was paid $230 million, to build 680 "designer" apartments. Labour and materials worth $338,000 was used per home and each sold for an average cost of $1,000,000.

Quite the tidy profit for its developer. Shame about the creaking.