So me and my mate are doing up a drift car and it gets left on the street because he lives in an apartment block and there is not always a free spot. Sounds sus already right. Well anyway the cops called him and said that because it had been unregistered for X amount of time that they were going to tow it and impound it. They already took the plates off. Is this all legit? We don't drive it on the street just park it. It's not in pieces or anything either it's all there. How can they just take it away? What if we are fixing it up before rego?! Sounds weird to me.
What to do folks?

I believe they can if it is parked on the Roadway and not currently registered. The local council where I live do this regularly. Generally they stick a sticker on the windscreen advising that if vehicle is not removed within 24hrs it will be towed to the Council Impound yard. They keep them there for about a month and then have the power to sell them by tender (unless you pay their storage fee and remove it before it goes out to tender).

If it has been towed you'd better chase it up otherwise you'll never see it again as it will be sold off.

No joy for a car lover

get a permit for it, then they cant tow it. will cost you same as reg over a yr.

Make your you advise the apartment block manager that the car is owned and under registration
This happened to me in USA because my Cadillac was parked in an apartment block and had out of state plates on it
They didn't know who belonged to the car and reported it
I smoothed it over and no issues... car was regularly used from that point for 3 moths till I brought it home

They can't tow it if its on private property... but they can in a public carpark... so make sure everyone knows its not a stray

And tell your mate to buy a house

They don't give much slack these days do they. Thanks guys, no joy for a car enthusiast indeed.

One trick you could have tried was to put a car cover over it so the plates and vehicle couldn't be seen.

put it on a registered car trailer ,problem solved

Move it immediately and work on it somewhere else.
There were excellent suggestions: put a car cover on it
and put it up on a trailer.
Perhaps your motor vehicle registration people could be of help in finding a way out of trouble for you.
When I am in doubt, I look up the legal code covering it and make sure I am in compliance. The regulation on your car may have been made before many people living in apartments made race cars. Many farmers have made race cars, they had spare time and lots of room. Move to the country.

On a more positive note these laws can be used to your advantage, i had a car that i stripped down to a shell with no wheels. I dragged it down the back alley and on to the street with the intention of get someone to remove it. I called a few people to pick it up but no one would take it without wheels and full of #OOPS#, but our council being in a hurry to keep the street clean came past and stuck a sticker on it to say that they would tow it away if i did not move it, so i let them. Saved me the money of paying someone to take it. And its not like they couldn't find out where the car was from to get me to do something about it as there were huge white scrap marks from the car to the garage door.