The VIC Strata Building Bond is Coming - Why Developers Should Prepare Now

In 2025, the Victorian construction industry will see the introduction of the Strata Building Bond, a new requirement designed to safeguard against defects in new strata projects. Although the final details - such as the bond amount and holding period - are yet to be confirmed, developers should take early action by incorporating the bond or alternatives like Resilience Latent Defects Insurance (LDI) into their project feasibilities. Doing so will not only ensure readiness but can also unlock more attractive financial options and long-term benefits.

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Why Building the Bond or Resilience LDI Into Feasibility Studies Is Essential

Feasibility studies drive decision-making and help determine the profitability of a project. As developers plan future projects, factoring in the costs and requirements of the bond - or opting for Resilience LDI - will improve financial planning and flexibility:

• Accurate Cost Forecasting: Developers can estimate costs based on the 2%-3% bond structure seen in NSW, ensuring that budgets reflect the necessary financial commitment.
• Scenario Testing: Including the bond or Resilience LDI option in to feasibilities allows developers to compare their cost impact and overall value. With Resilience LDI premiums generally sitting between 1.4% and 1.6% of the construction value, this option can be a cost-effective solution with longer-term benefits.
• Enhanced Stakeholder Confidence: Developers who proactively account for defect protection in their feasibilities demonstrate strong project governance, which can increase confidence among buyers, strata managers and financiers.

By embedding these considerations early, developers can better navigate regulatory changes and ensure their projects remain viable, even as new requirements come into play.

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How Resilience LDI Offers Financial and Operational Flexibility

Resilience Latent Defects Insurance is a viable alternative to the bond that offers several advantages, particularly in its financial structure and extended defect protection:

• Lower Upfront Costs: Resilience LDI premiums at 1.4% to 1.6% of the construction value are typically less than the 2%-3% bond requirement. This means developers can allocate more capital towards construction and other investments.
• 10-Year Coverage: While the bond may be held for two to three years, leaving potential gaps in defect coverage, Resilience ? LDI ????? provides comprehensive protection for up to 10 years, safeguarding developers from long-term risks.
• Improved Financing Options: Resilience LDI can strengthen a developer’s financing applications by reducing the need for large capital reserves. Lenders may view Resilience LDI-backed projects as less risky, leading to better loan terms and lower financing costs.

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Better Financial Options Through Early Planning

The key to maximising financial flexibility lies in proactive planning. Developers who consider the bond or Resilience LDI early in their feasibilities can create a stronger financial foundation, potentially benefiting from:

• Negotiating Power: Early preparation positions developers to secure better loan terms or alternative financing options.
• Efficient Capital Allocation: With accurate budget forecasts and strategic use of Resilience LDI, developers can direct more resources towards project development and marketing.
• Stronger Project Returns: By optimising feasibility studies, developers can identify opportunities to improve project margins and maintain profitability, even as regulatory requirements evolve.

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What You Should Do Next

1. Include the Bond or Resilience LDI in Feasibility Studies: Begin incorporating a 2%-3% bond estimate or Resilience LDI premium of 1.4%-1.6% into budgets to understand their impact on overall costs and returns.
2. Evaluate Financing Options: Engage with lenders early to discuss how Resilience LDI can complement or replace the bond requirement, potentially improving loan terms.
3. Consider Long-Term Protection: Assess how Resilience LDI’s 10-year coverage can provide a competitive edge and long-term risk management for your projects.

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Are You Ready for the VIC Strata Building Bond?

With proper planning, the introduction of the bond doesn’t have to impact your bottom line. Build the bond or Resilience LDI into your feasibilities now to secure better financial outcomes and future-proof your projects. Contact us today to explore how Resilience LDI can complement your strategy and optimise your capital allocation.

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Author: Melissa O'Driscoll

February 2025