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Home / New Zealand

Money: End of the line for Queensland's property sharks

Mark Fryer
By Mark Fryer
Editor - The Business·
21 Sep, 2001 07:38 AM8 mins to read

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By MARK FRYER

In Queensland, avoiding the sharks isn't just a matter of staying out of the surf. That's because many of the sunshine state's sharks are of the two-legged variety.

Their favourite prey is the investors, including many New Zealanders, who flock to the state to buy property in areas
such as the Gold Coast.

While dodgy real estate deals are hardly news in Queensland, the extent of the ripoffs and the financial misery they cause have been graphically illustrated in a series of recent articles in the Brisbane Courier-Mail newspaper.

The long list of sad stories includes cases such as the 61-year-old widow who borrowed $A180,000 in 1998 to buy a Gold Coast property which fetched only $A110,000 when she was forced to sell last year, leaving her to struggle with the rest of the debt, which has been transferred to her own home.

Then there's the 59-year-old woman who discovered that the $A300,000 she paid for two townhouses included $A66,000 in marketer's commissions.

The state Government has responded with new laws allowing for fines of up to $A250,000 for real estate agents, marketers and others involved in selling property.

Whether the law change will curb the abuses remains to be seen.

In the meantime, the message for anyone thinking of investing in Queensland property is simple: take your time, don't believe everything you're told, and do your own research, rather than relying on information provided by property marketers.

At the heart of Queensland's problems is what they call the "two-tier market". What that means is that there is one price for locals, who know the property market in their area, and another - much higher - price for out-of-towners who can be persuaded to pay more.

That higher-priced end of the property scene is sometimes known as the "seminar market", because buyers are often lured through so-called investment seminars which are, in fact, thinly disguised property marketing schemes.

At those seminars the presenter stresses the value of property investment, particularly as a way of providing for retirement, and its tax advantages.

Those who buy the spiel often find themselves being offered a free trip to Queensland to see the area's attractions for themselves.

At the airport they are greeted by a "runner", who shows them around the area, shows them some potential properties and does everything possible to get them to sign up there and then.

Many buyers tell of being put under intense pressure, and being kept away from any source of independent advice. In many cases, valuers, lawyers and financial advisers are all provided by the marketer, rather than giving genuinely independent advice.

The marketers are paid handsomely for their efforts. According to the Courier-Mail's investigations, properties selling for $A150,000 ($180,000) may earn the marketer a commission of $A30,000, which is built into the purchase price.

That means buyers are paying $A30,000 more than they would have paid if they had bought the same property directly from a real estate agent.

The buyers will be oblivious to the fact that a large chunk of the purchase price is going straight to the marketing company that sold them the property. That they are paying too much may not be obvious if the lender doesn't require an independent valuation before agreeing to the loan.

According to a report for the Queensland Office of Fair Trading, "even over extended time frames the majority of investors will not overcome the immediate capital loss they sustain".

While similar practices are not unknown elsewhere, southeast Queensland has been particularly fertile territory for the property marketers.

Last week the state Government passed laws aimed at curbing the property scams.

The law change means that all residential property sales in the state, except auctions, will be subject to a five-day cooling-off period, during which the buyer can back out. At present, only some sales are subject to the cooling-off rule.

The law also allows for fines of up to $A250,000 for anyone who uses misleading information to make property sales, including marketers, real estate agents, lawyers and bankers.

Whether the new regime will stamp out the problem remains to be seen, given that a tightening in the law only two months ago seems to have failed to dent the marketers' enthusiasm.

The marketers are also being targeted by several law firms, which have begun preparing claims on behalf of aggrieved buyers.

Rob Lees, from Melbourne law firm Slater and Gordon, says he has so far been contacted by about 400 people wanting to make claims.

While he has received some calls from New Zealand, he says it's too difficult to take on complaints from outside Australia.

In three or four cases where buyers have not yet paid for their properties, he says the firm has extricated them from contracts simply by rescinding the deal on the basis that the property was misrepresented.

"We're using that where people have been told, as most of them have, of course, that 'this is the market value' or 'this is what your property is worth', or 'you're going to make so much in capital gains' ... thus far, we've not had a squeal from any of the developers that we've rescinded."

Another lawyer, Judy Teitzel of Brisbane firm Carter Capner, represents 200 or so unhappy buyers who are taking three test cases against marketers. Those cases also target various professionals, in the hope of winning money from their insurance schemes.

Some New Zealanders are already involved in those actions and she is happy to take on more (contact jteitzel@cartercapner.com.au, or call 0061 7-3210-3444).

At this stage buyers need to have bought in the past six years for court action to be an option, although she is trying to extend that time.

Many buyers don't discover they've paid too much until years later, says Judy Teitzel, when they decide to borrow more against their investment property, or need to refinance the original mortgage and discover the new valuation is much lower than they expected.

But, sharks or no sharks, many New Zealanders still like the idea of buying Queensland property.

The question is, how do you avoid getting bitten?

The answer isn't rocket science - unless you are a frequent visitor to the area and are familiar with local property prices, get to know the market before agreeing to anything.

"That means spending an extra few days there talking to local agents getting a feel for property prices and, if appropriate, getting a proper sworn valuation on the property," says Mr Lees.

"People know in their own street what houses are worth because they keep an eye open and they see what properties sell for - the same principle applies when you're buying in a foreign region.

"Don't be conned, don't be fooled by what the sellers tell you, they're not there acting in your best interests."

If you do get a valuation that later proves to be inflated, he says, you at least have the ability to sue the valuer.

Mark Brimble, president of the Real Estate Institute of Queensland, has much the same advice.

"One of the things I would highly recommend to anyone who's coming over is take time to talk to some of the local real estate agents about property prices and values in the area," he says.

Potential buyers shouldn't take as gospel the information given to them by the property marketers, he says, and $A300 or so for a valuation is money well spent.

David Smith, of Queensland's Office of Fair Trading, says: "We've always said that before anyone buys any property they should seek independent - and we underscore that - legal advice and they should also seek an independent valuation of that property to ensure they are getting value for money."

When the new law comes into full effect next month, residential real estate contracts will come with a prominent warning notice which will include a contact number for the Valuers Registration Board and advice on how to get the property's sales history.

Buyers will also have to be told of any benefits that anyone in the sales process stands to receive from selling, promoting or marketing the property.

Buyers will be able to stop a deal if they were not shown the warning statement, or did not sign it.

The fair trading office also warns against buying property sight unseen, off a website or from photographs, and says an independent valuation is particularly important when the vendor is also providing the finance.

Beware of promises of high increase in rentals or values, it says, and if there's a guaranteed rental return, "assume that the property may not provide the same rate of return after the guarantee has expired".

And when you've done all your investigating, don't just accept the asking price - negotiate.

* For extensive coverage of Queensland's property marketing scams, see the Brisbane Courier-Mail's website - (click on "property probe").

* Contact Personal Finance Editor Mark Fryer at: Business Herald, PO Box 32, Auckland. Phone: (09) 373-6400, ext 8833; fax: (09) 373-6423; e-mail: mark - fryer@herald.co.nz

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