I’m so angry!
It is the property market equivalent of Storm Financial just waiting to implode and no one seems prepared to do a damn thing about it. I am one of a handful of people who have been proactive in lobbying for new legislation to protect property investors from vested interest groups for some years. Yet we keep seeing deals being done between property developers and white-collar service providers.
Currently, there is no law in this country which prevents people such as mortgage brokers, accountants, and financial planners from profiting out of persuading consumers to purchase a property from a product list, even though they have no qualifications or skills whatsoever in this field.
Just this week, home loan group, Australian Capital Home Loans announced that they will offer “independently graded and valued” property through its sister company, Australian Capital Property.
In Swahili, “independently graded” means “product which one gets a good kick-back through the strategic use of smoke and mirrors”.
ACHL managing director Barry Parker said that their scheme would reassure customers that the properties hadn’t been overpriced to account for massively inflated sales commissions. Parker is referring to some groups, including mortgage brokers, who are reportedly receiving up to 8% of a property sale price as a rebate from developer’s marketing arms.
“We decided to offer these investment properties because we were becoming increasingly worried about the integrity of investment properties that paid huge commissions to salespeople. Of course, there’s something in it for the broker too: getting your customer into a sensibly-priced investment property to help grow their future wealth and sharing in the standard real estate sales commission,” Parker said.
How wonderfully comforting that is, Mr Parker. Not!
The price of an asset being supported by a valuation report does not determine whether or not the asset has strong investment fundamentals and a healthy outlook. It disgusts me when people try to portray a white-knight status with a north-pointing moral compass when the truth of the matter is that greed and opportunity are the real behaviour drivers.
Parker said “What we’re doing is providing brokers with a range of investments they can confidently offer their clients”.
Well, while you are at it, Mr Parker, what is stopping you and your brokers from offering clients opportunities to buy shares in the next ABC Learning or HIH Insurance? The reality is that, unless studying property markets is your core business, I’d suggest that you’d know as much about what constitutes a good investment property as my mechanic would about stock markets. But, at least my accountant is giving stock tips and getting a clip on the ticket from the ASX.
The federal and state governments are whom I’m most angry with over this disgraceful fiasco. Amongst other things, I’ve personally met separately with senior officials of the federal government’s financial services ‘police’ (aka ASIC) and the Queensland state government’s Attorney General’s Office. Responses that I have received range from “we can’t intervene because property isn’t considered to be a financial instrument”, to “we must be careful not to deprive people of earning a living”, and “we are looking in to it”.
It is not uncommon for Propertyology’s office to receive approaches from marketing companies who represent property developers and offer us in the vicinity of $50,000 per property. They are dud investments. These companies offer to supply us with all the glossy brochures, website portals, and all of the jazz words and crappy stats which they purport to be ‘research’. Regardless of where the property is located, who the developer is, or whatever spin they use, the common denominator is always brand new property.
How else can those big fat rebates payable to brokers, accountants, and financial planners get funded?
No matter what spin they choose to use they are selling property. Let’s face it, in many cases it wouldn’t be too hard for them to persuade someone to buy one of the properties on their product list because the relationship and a sense of trust is already established as a result of their core business as a specialist in home loans, tax, or managed funds. Is it just me, or can anyone else see a problem with these people selling property?
For over a century there has been a recognised profession for selling property in Australia – they are called real estate agents. The law requires them to pass exams, acquire a license, hold professional indemnity insurance, complete ongoing training, understand and respect property legislation. They also work for and are paid by the property owner, and most do a good job for their client. But, how is it possible that others can exploit a pre-existing relationship from another profession and sell property with nothing more than a nod and a wink?
If they want to sell real estate, go for it. Get the license and put the sign out the front. But present yourself for what you are – someone selling property – not a property guru who very conveniently happens to have a list the best investment properties out of the 9.3 million in Australia.
An accountant is no more qualified to determine whether property ‘x’ is a good investment than a real estate agent is qualified to give tax advice. Mortgage brokers and financial planners are not property investment advisors. And, a glossy brochure containing a few graphs, some generic statistics from Census, and key words such as ‘urban renewal’ or ‘inner city’ does not constitute comprehensive market research.
It is unrealistic to expect that we will ever be rid of the white-shoe-brigade property spruiker. But, in my opinion, the people whose core business is another profession while they line their pockets pretending to be property gurus are worse than the spruikers. Their greed-driven behaviour is no better than the used car salesman who sells you a lemon that he knows has a broken chassis. At best, these people are ‘reckless distributors’ of properties with low-grade investment potential.
No matter what other services they have previously obtained from a firm, property investors would be wise to question the motives of their so-called ‘trusted advisor’. Property investors would do well to question why not one of the other 9.3 million properties in this country.
Property investors would do well to consider how a brand new property could have the best potential for capital growth when 40% of the price is made up of the various taxes associated with developing a new property.