Diana Clement: Dodgy deals loping towards you

Agents admit misleading a vendor, property inspections miss dodgy houses, hotel units plunge in price. The real estate industry hasn't had a lot of good press this week.

What's worse is these reports are just the tip of the iceberg.

The average person working in the property industry is no doubt kosher. None the less there are sufficient cowboys on the loose to make property buying like a trip into the Wild West unarmed.

Even if you'd never consider selling your own property, it's worth reading Real Estate Without Agents, an Australian book written by Kiwi Terry Ryder. Some of the tricks he warns of include:

* Conditioning. Real estate agents want to sell your house and can give you an inflated price in the hope of getting your business. Once you've signed on the dotted line, they condition you to sell at a lower price.

* Dummy bids at auction. Officially the vendor can put a vendor bid in to push it up towards the reserve but cases of dummy bidders being paid to push the price up aren't uncommon, say real estate campaigners.

* Advertising a home below its real value as bait to lure buyers in.
Advertisements which say "price range" or "offers above" or "bidding to start from" can be misleading. A court ruling last month said, however, that providing the price was more than 90 per cent of the expected price this was acceptable.

One good chance of getting poor quick is by attending a "wealth creation seminar" - the type that is sold to people with dinnertime calls.

The actual "seminars" are typically used to soften naive investors into believing that by buying an apartment and using a slick combination of negative gearing, depreciation, loss attributing qualifying companies and capital gains promises, that they're going to retire wealthy. At the dodgier end of this market, all of the paperwork is stuck to the walls and you're not given paperwork to take away.

Deborah Battell, director of fair trading at the Commerce Commission, says she has sent staff to such seminars covertly where they saw potential investors subjected to high-pressure tactics. "They say, this is a one-off opportunity, you won't have this opportunity again. It's selling fast," Battell says.

If you had the answer to the riches promoted by cold callers, says chief executive of the Consumers' Institute David Russell, "you certainly wouldn't be introducing others to share the pot of gold on which you had stumbled".

Martin Dunn, head of apartment specialist City Sales, says he sees investor after investor who has been sucked into buying overpriced apartments off the plan.

* Guaranteed rents. These are offered for a fixed period of time to entice buyers in. Once the guaranteed rent period runs out, the market rent isn't enough to pay the bills and the over-inflated price has dropped.

* Managed hotel apartment investments. Rents have collapsed in some cases once guarantees have ended. If, however, you want to sell or rent it out on the open market you'll need to repay 12.5 per cent of the value of the apartment in GST to the Inland Revenue Department. Ouch.

* Inflated depreciation claims. The Inland Revenue has recently clamped down on the depreciation investors can claim, yet inflated figures are given to potential investors.

* Inflated valuations. One of Dunn's biggest bugbears is that apartment buyers are shown valuations based on what similar apartments have sold for off plan, not what they sell for on the open market.

* Two-tier pricing. One for locals and one for outsiders. Although illegal in New Zealand and Australia, it is believed to be still going on.

* Cancelled contracts. Apartment buyers have, in some cases, had their contracts cancelled, just as they were looking a healthy capital gain in the eye. The developer was able to invoke a clause that enabled them to cancel the contract and re-sell at a higher price.

Financial planner Robert Oddy, of International Financial Planners, reviewed one investment recently where a client had bought sight unseen a property which she believed to be new, but wasn't, from a company for $240,000 - the valuation provided by a related company. Two years later, it's still only worth that according to independent valuations - despite the market having moved up considerably. The property has a guaranteed rent, from a related company, and is managed by yet another company in the chain. A complex lease arrangement will make it difficult for her to sell on the open market.

If you're investing in property, the best way to know you're getting an honest deal is to do your research, get your own valuation, rental assessment, mortgage broker, accountant, lawyer and so on.

Don't trust anyone put your way by agents or companies marketing developments.

Commenting on a Consumer article this week that inspectors had missed dodgy houses, John May, vice-president of the Auckland Property Investors Association, said: "If you are a property inspector and 80 per cent of your leads come from one particular agency, of course you are going to look after them."

From time to time, local and international scammers ride roughshod through Kiwi investors who think they can make a fast buck.

These can include Queensland-style frauds where investors are flown to an exotic location, shown overpriced property and convinced to buy.

Or buy-back schemes where a homeowner unwittingly signs the ownership of his or her home over to a fraudster.

Those that are tempted by promises of wealth ought to read Mary Holm's new book, Get Rich Slow, it'll probably make you more money than an off-plan apartment in the present market.

Who to complain to?

If you think you've been the victim of fraud, then it's the Serious Fraud Office you need to contact on 0800 109 800 (ext 863) or send an email to complaints_officer@sfo.govt.nz

For a breach of the Fair Trading Act, then contact the Commerce Commission on 0800 943 600.