Victoria Offers Latent Defects Insurance as Alternative to Strata Building Bond

This initiative is part of a broader strategy to stimulate both supply and demand in the new apartment market. Recent government measures include removing stamp duty on new apartments until October 2026 and encouraging increased housing density around 50 key train and tram corridors. The introduction of LDI is expected to boost buyer confidence in a market that has seen sluggish demand in recent years.

Victoria’s Strata Building Bond scheme, similar to the program introduced in New South Wales in 2017, requires developers of apartment buildings with four or more storeys to provide a bond equal to two percent of the total contract price. This bond, held by the Building and Plumbing Commission, is intended to cover the cost of fixing defects found in common areas within a set timeframe after completion. However, criticisms of the bond scheme include its limited coverage, as it only addresses common property and does not cover private areas or structural defects, nor issues related to faulty materials, design, or workmanship.

Latent Defects Insurance, typically costing between one and 1.5 percent of a development’s total build cost, offers broader protection. As a “first right” policy, it serves as the primary source of financial coverage in the event of structural issues. LDI covers the cost of repairing or replacing components damaged due to defects in design, materials, or workmanship, with a 10-year coverage period beginning from the date of the Occupancy Certificate.

Resilience has been working closely with the Victorian Government over the past 12 months to help establish a workable framework for the policy’s adoption. The New South Wales Government has also expressed support for Latent Defects Insurance and is expected to announce it will become mandatory in 2028.