English translation, article originally appearing in the Vision China Times, Melbourne (17 October 2015)
The property market in Melbourne is red-hot, with property developers competing for sites in desirable suburbs like Glen Waverley, Mt. Waverley, Ashburton and Box Hill. Chinese property developers are doing good business by subdividing and building townhouses and apartments in these blue-chip suburbs. A word of warning, however, to those who are in this lucrative business – a great many unexpected events might happen, leaving you millions of dollars out of pocket, or worse, even bankrupt.
For example, a property developer in Mt. Waverley is now footing the bill to repair the damage caused by a landslip in a 20 metre-deep construction pit at his building side on Highbury Road. He also has had to pay for the hotel accommodation costs for a dozen residents evacuated from the two townhouses on the edge of the pit. In cases like this, insurance is absolutely critical. This is a timely reminder to all in the property development business that insurance can’t be ignored.
What can go wrong
There are several key risks that you need to consider if you are developing a property, where it’s two townhouses or a large block of apartments.
Firstly, you must insure and protect the site that you have purchased. It could be some time before your permits are approved by the council and you can start to demolish the site. Even if you’re planning to bulldoze the site, you must at least buy public liability insurance, or you could be sued.
Next, once you start construction, you must make sure that you or your builder has the right insurance policy. Many things can go wrong on site – your property could be damaged by water from severe storm or you could be a victim of arson or vandalism. Quite commonly, expensive items like hot water systems or even kitchen appliances and cabinets, can be stolen from an unoccupied site. Further, the excavation or construction could damage nearby houses, for example, weaken the support of a neighbouring building, or cause a landslip. In one case, a crane was not properly set up, and caused disastrous damage when it toppled over. All of these losses can be prevented with the right insurance. You also must make sure that the businesses you work with have their insurance in place. For example, your architects, engineers, and surveyors all must have professional indemnity insurance. Depending on how insurance in arranged, your builder and tradespeople may need separate insurance.
As a property developer, you may also need to consider the safety standards at the site. WorkCover insurance is essential, and you also have to make sure you provide your workers with a safe working environment.
Finally, once your new development is complete, don’t forget to insure the finished product. How you do this will depend on what you are planning to do with it, for example, if you are planning to sell it, manage it as a body corporate, or let it out. If your company also performs real estate activities, for example, selling and renting properties, you must also consider real estate public liability and professional indemnity insurance.
Suggestions to Chinese property developers
Insurance for a property developer isn’t straightforward and simple. To make sure that you are properly protected and that you won’t be up for potentially millions of dollars, insurance is absolutely worth paying for and getting right. Get professional insurance advice, consult an insurance broker, in the same way that you seek professional advice from architects, engineers, and electricians.