Property investments

Property is often referred to as the “Great Australian Dream”. It can provide a sense of security and achievement – to be able to own your home and maybe the odd investment property, and is often thought of as a means to provide you with a secure future.

Unfortunately, this dream has given some dubious individuals the opportunity to prey on unsuspecting investors and turn their belief in the “Great Australian Dream” into a nightmare. Meanwhile, these promoters, who are often not even licensed real estate agents, pocket a tidy profit.

Queensland property marketing schemes
These schemes are developed around properties in popular tourist destinations in Queensland. They market two different prices – one price for the locals and one for the unsuspecting outsider. They are targeted to individuals who do not have local knowledge. These marketers run investment seminars interstate selling the advantages of property investments.

This is particularly common in high growth areas. Some of these promotions even offer free airfares to view the property. The catch occurs with the price – potential investors are given a purchase price above fair market value.

However, because they do not fully understand the property market in that area, and combined with high pressure sales techniques (from the promoter, solicitors and finance providers), these individuals find they have been done out of their hard-earned money.

The people that benefit are those involved in the scam. The poor investor is left with a property that they have paid too much for and cannot possibly get their money back if they sold it.

CASE STUDY

The Australian Competition and Consumer Commission (ACCC) has recently undertaken court action against the promoters of a Gold Coast property scam.

In this instance, a North Queensland couple attended an investment seminar and were subsequently convinced to take an all-expenses paid trip to the Gold Coast to see what they could invest in.

Not only were they shown a potential investment property, but they also visited a financier. By the end of the day the couple had succumbed to the selling pressure and marketing hype and purchased the property. Their downfall was that they had purchased at around $60,000 above market value.

In this instance, there were a number of individuals involved in the deception, and not all of them received monetary compensation. From a monetary point of view the promoter and developer benefited. However, solicitors and bank staff were also involved as they kept the true property valuation from the couple. The ACCC has now taken up the case to seek redress for the couple and to stop the individuals from engaging in this activity in the future.

Useful tip:

Never be pressured into buying or investing in something on the spot, or before you have had time to go away and investigate the offer. Always say you would like some time to think about it – a legitimate investment provider will never question this request.

Property syndicates
Many investors will be aware of property syndicates, which have been heavily promoted in recent times as a safe and secure investment. However, an investment in a property syndicate is not necessarily all that it is made out to be.
Why are property syndicates a risky investment?

  1. They seek to overcome the problems that led to the unlisted property trust failures of the early 1990s, i.e. – short-term investors in long-term investments. Property syndicates do not allow investors to redeem their money – it is locked away for the full term of the investment, which is usually 7 to 10 years.
    It is impossible to predict market conditions over such an extended period of time. In the event of a property downturn, many investors will be left to watch their investment decline in value whilst being unable to cut their losses.
  2. Operating costs are very high because the syndicates are usually run by small businesses lacking the knowledge, resources and buying power to properly administer the investment. These syndicates are not property trusts run by the likes of Westfield, Mirvac or Lend Lease.
  3. They are very high risk. Syndicates are often geared to 60-65% which, when combined with the high upfront costs, will mean a small market downturn can wipe out all your equity and more.

Useful tip:

You should consider these factors before making an investment in a property syndicate. Whilst attractive on the surface, there may be better investment alternatives around.

Deposit bonds and investment seminars
Deposit bonds can be useful if used properly. A deposit bond acts as a substitute for a cash deposit when purchasing a property for only a small initial outlay. However, there is a scheme designed to take advantage of the deposit bond. The scheme is to encourage people to buy a property off the plan and use a deposit bond as the initial deposit. There is no real cash outlay and settlement is often 12 months away.

The next stage of the plan involves selling the property before settlement date for a profit. These individuals can then repeat this process several times over, so that they end up purchasing several properties.

Individuals that don’t have the money to buy a property outright, invest in this type of property. The investment seminars that these promoters run have attracted a lot of interest. They are attracted by the small outlay and potential profit that can be made down the track.

Whilst this sounds good in theory, if the property price does not increase or if the property cannot be sold then the scheme falls over.

However, these people are left high and dry should the property fail to sell, or, fail to sell for a profit. They are then stuck trying to finance something they cannot afford.

Useful tip:

Never borrow more than you can afford. Deposit bonds are not a bad way to finance a deposit for a property. However, make sure you can comfortably finance the deal at the end of the day.