Return to the Days of Property Spruiking
By Peter Sarmas on 19 Sep 2013
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Over the past few weeks, I’ve attended a number of real estate and financial advice seminars where property spruikers have been reappearing.
Property spruikers, or so-called ‘property experts’, promote real estate investment opportunities with attractive promotions and sleek brochures designed to suck you in.
But when you strip away all the gloss, you’re often left with an overvalued property that offers very little in terms of strong yields or robust capital growth.
Why The Return of Property Spruikers Isn’t Suprising
It’s hardly surprising that property spruikers are coming out of the woodwork in Australia again.
With confidence in Australia’s property market on the rebound, and house prices in most metro centres on the rise, many mum and dad investors are looking at purchasing a piece of land as a viable asset, so it can provide them with positive growth and an income for retirement.
These are the investors that spruikers have in their sights. And I’m worried that we’re getting into the realms of the ‘Henry Kaye” era, where property investing is becoming the next get-rich-quick scheme, and unscrupulous companies are using property investment seminars to put investors into what I call ‘risky property’ – for example, property that is poorly located or in oversupply.
“It’s hardly surprising that property spruikers are coming out of the woodwork again… with confidence on the rebound.”
A bad investment only stinks when an owner finds they have bought into an estate or an apartment block with hundreds of other investors.
Often, all of these investors are competing against one another to secure the same tenant. As a result, they start offering rental price decreases, furniture packages or lease incentives.
These concessions are a hardship on the investor. After enduring years of poor capital growth, they usually decide to cut their losses, only to face an oversupply of the same type of property being sold at or just above their property’s purchase price.
Greed does interesting things to people and businesses. The strengthening of the real estate market has already resulted in some worrying signs of greed, causing individuals and companies to try and make a killing overnight.
I have seen and heard the following practices firsthand over the past few weeks. They present some serious conflict of interests:
1. Companies and advisors putting clients into areas they already own stock in. Where’s the impartiality in that?
2. Education/advisory individuals/companies using property investment seminars to sell off-the-plan properties where individuals are likely to face settlement risk, meaning at the time of settlement, the valuation comes in under the original purchase price, creating a shortfall that must be paid by the purchaser.
Many of these properties are in locations with poor long-term rental and capital growth prospects. These so-called advisers are receiving huge kickbacks for selling developers’ stock.
3. Companies selling properties to investors on a promise that an area is about to boom based on infrastructure either being built or to be built; or the promise of a recent boom in a nearby suburb. Many of these areas are near ‘green fill’ estates which have endless supplies of land and new property, usually with little or no infrastructure.
Warning signs to look out for:
1. Spruikers giving property advice with no qualifications.
2. So-called advisors recommending property and stock they already own or have a relationship with, who are usually receiving kickbacks from developers.
3. New property which abuts a new housing subdivision.
4. Apartments in areas that have a huge supply (the Melbourne CBD, for example) due for release in the near future.
5. Areas where supply of property outstrips demand from buyers.
Other general things to look out for:
Sloping blocks, irregularly shaped blocks, power lines, proximity to areas with a large number of tenants, ministry of housing property, skid marks on roads, neighbouring commercial property, unit complexes bigger than 16 units with a pool or a concierge, large body corp fees, lease back agreements, rebates, stamp duty paid by the developer, “free” advice, free TV, furnishings, holidays and cars, and areas with no public transport options.
If you are thinking of buying selling or investing and would like a FREE 5 minute chat
with Street News Director Peter Sarmas, please contact him on 0418 740 606
or via email at [email protected]
