Despite repeated ‘in your face’ warnings to seek independent valuation, investment & legal advice, there seems a ready supply of ‘suckers’ available for plucking by shoddy spruikers selling overpriced units/ townhouses promising returns that are usually not sustainable. The dubious end of the financial services sector is also cashing in by advocating borrowing in self-managed super funds delivered though high pressure sales spiels offering a ‘one-stop-shop’ of services … ‘just sign here’. There is a mountain of legislation, regulation and controls designed to protect consumers, and it works reasonably well …. but it can’t protect everyone all the time.
There are some excellent property investment opportunities but there is also a minority rogue element. Most the pain and anguish could be avoided if the ‘investor’ sought INDEPENDENT ADVICE before signing the dotted line.
The following recent media articles & posts illustrate the current trends:
“Real estate rort ruining thousands of lives” – Anthony Marx : The Sunday Mail
Thousands of Australians are being stung in property investment schemes of dubious value, with real estate agents saying the practice has infested the entire industry.
Using cold calls, home visits and high-pressure seminars, marketing agents ramp up fear of an impoverished retirement to push gullible mum and dad investors into buying investment real estate.
They promise a low weekly cost to negatively gear properties, high rents and the certainty of strong capital growth in suburbs well outside of the Brisbane CBD.
But many of the units and townhouses’ capital growth has been largely absent, with most buyers only learning the sad truth if they go to list the property for re-sale.
Investors have also found their weekly costs are higher than expected, putting pressure on household budgets. Rents are often far less than predicted and supposed waiting lists of tenants never materialise.
“Buying Off The Plan” – Noel Whittaker : Noel News
The property spruikers are still hard at it telling anybody who will listen that you can’t go wrong buying units off the plan. This idea was refuted by a recent article in the Brisbane Courier Mail which pointed out that 80% of people who bought units off the plan lost money.
The main reason is that most buyers are investors who have been talked into buying by property spruikers who usually take a commission of at least $30,000. This puts the victim way behind the eight ball to start.
The properties are aggressively marketed by a sales team, usually just for the tax benefits, but when the building is finished and all the units are sold, the sales team departs to the next project.
This leaves only two options for anybody who has bought one of the units, and who now wants to sell it. They can either try to sell it privately, which is extremely difficult, or engage a local agent who may be unfamiliar with the building, and who may have problems getting access if it is tenanted. Either way it’s tough.
“The stampede into property by self-managed super funds is a risky business” – ABC TV Business News
TICKY FULLERTON, PRESENTER: Here is a story about the super spruikers. Investing in property with a self-managed super fund has ballooned into a multi-million-dollar business since the law was changed.
But alarm bells are ringing with the regulators concerned at the way that some of the less scrupulous schemes encourage people to set up funds and then borrow heavily to buy property.
ANDREW ROBERTSON, REPORTER: It’s the latest gold rush in financial services. Six years ago, the Howard government lifted the ban on superannuation funds borrowing money; now there’s a stampede of self-managed super funds into property.
PETER KELL, COMMISSIONER, ASIC: We don’t want this to become the new playground for dodgy spruikers. We don’t want SMSFs to become the vehicle for choice for inappropriate property investment.
ANDREW ROBERTSON: The legitimate players all see the opportunity to make money in this space, but so too do those of less repute.
NEIL JENMAN, PROPERTY ACTIVIST: Since 2007, since super funds were allowed to borrow, the number of property spruikers that have come into the industry would’ve increased probably by a factor of 10. There’d be 10 times as many property spruikers now than there were now in 2007, and that’s conservative.
NOEL WHITTAKER, QUT BUSINESS SCHOOL: There is one Gold Coast company making 22,000 cold calls a week. And the cold call starts, “How would you like to save tax and pay your home off quicker?” Whacko! “Well to see if you qualify, one of our consultants will come to your house.” And qualifying means you have a job and equity in your home. The next thing is a six-hour brainwashing interview which ends up with you buying a property from them.
ANDREW ROBERTSON: As well as this high pressure sales approach, the tactics of the spruikers include property with inflated values, guaranteed rent which in effect is paid for out of the inflated price and high commissions for all the services the spruiker provides in what’s usually a one-stop shop.
CLAIRE MACKAY, QUANTUM FINANCIAL SERVICES: This is the typical arrangement for these sort of deals is that you’re sold a property and they might say, “Well the property is this. We’re going to give you a discount.” And so you feel like you’re getting a significant discount. When – if you were to get an external bank to value it, they would value it even lower again.
ANDREW ROBERTSON: I spoke with one of Claire Mackay’s clients who didn’t want to appear on camera. He’s a highly educated, financially literate company executive and it’s a measure of how plausible some of the property spruikers are that even he was drawn in.
He was approached by a company called ParkTrent who urged him to set up a self-managed superannuation fund to buy two properties in Queensland and one in Melbourne they said were worth $1.3 million. Fortunately for him, he sensed all wasn’t right and he broke the golden rule of the spruikers and got some independent advice.
Again, on a connected topic, the usually conservative Australian Property Institute (API) has issued warnings …….
API Member Alert: Residential Developments with Split Contracts
The residential development industry has seen the emergence of developments with what is being termed as a ‘Split Contract’. The structures of these deals vary greatly, however, they have one key homogeneous component; the land is sold and settled and is subject to the purchaser entering into a building contract. Typically, this would not present serious issues; however, it is the building type and the mortgage suitability of the land which is of a concern ……
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