by Tim O’Dwyer M.A., LL.B
A typical marketeering scenario begins with cold-calling of unsuspecting Mums-and-Dads to tout wealth-creation and/or tax saving seminars then proceeds to the slick selling and financing of specially selected investment properties. Those with snouts in this profitable property trough include sold-out financial advisers, amoral real estate agents, dodgy developers, willing builders, maggot mortgage brokers, parasitic solicitors, one-eyed valuers and disingenuous lenders. They are all in-the-know as this recent (slightly edited) whistle-blowing letter to me from an insider at a major lending institution largely reveals:
Tim, how are you? I read with interest The Courier Mail story (of February 16, 2006) regarding the Westpoint property and finance group and your rescue from Westpoint Realty of a couple sold a townhouse reportedly overpriced by $35,000.00. My role involves supervising the values applied by our in-house valuation officers. Late last year I had my staff look carefully at contracts in the Taigum townhouse development where your clients were buying. As a result we pulled our valuations back somewhat, but not quite the $35,000 mentioned in The Courier’s story. It was amazing how quickly the brokers changed tack, and stopped sending us loan applications.
Whilst I can’t talk about individual properties, our valuation rationale remains quite simple despite the fact that our valuers will have no resales evidence in these new developments. The basic resale value in that particular development is just not there. I know banks and other lenders have had some bad publicity in the past over funding marketeered buyers so it is important we keep on top of these issues. In the end we rely on individual loan managers and brokers to do the right thing by advising their customers to obtain independent valuations. That is part of my organisation’s policy. Although I have only been here a year, this is fast becoming the number one issue in investment property lending.
You may interested to know that units in another development in the same Brisbane suburb of Taigum are being sold using the same techniques. It is just getting harder and harder to keep track and I don’t think the toothless tiger Fair Trading legislation will protect anyone. Just last week we saw another development near Brisbane where the sales contracts actually separated marketing fees of $18,000 and a driver fee of $9,000. (Must have been a long drive from the airport at both ends.) These townhouses are selling for $340,000 each, but their real market value is $310,000. If that isn’t plain as to the sales tactics employed I don’t know what is. The selling agent is from the Gold Coast while some Sydney solicitors are acting for at least one buyer.
We have also seen townhouses (again in outer Brisbane suburbs) being flogged off for $450,000 each, but are really worth no more than $375,000.
Also on our watchlist is another developer who uses similar marketing techniques. As you would no doubt be aware, the buyers generally seem to trust the brokers and advisers far too much without any investigation themselves of likely resale values. As we saw on the Gold Coast, if they hang on for 10 years, they may get their original purchase price back. But we would need to have another huge property market spike during that period.
Anyhow I thought you’d be interested in this tiny fraction of the level of overpriced property sales my organisation is aware of both north and south of Brisbane.
As the market slows we will see these escalate as in the early 1990s, where the only developers who made profits were those who utilised the seminar marketing process.