We now have enormous numbers of one-bedroom dog boxes that are the slums of the future, absolutely unfit to live in. They are being built purely for the benefit of the marketeers. They are the mafia of the market..... ”

Excerpt: Buyer Beware

"Inflated Dreams: Beware overpriced property" is an excerpt from Buyer Beware, by Terry Ryder.

Copyright Terry Ryder, published by Wrightbooks, 2001. Reproduced with kind permission of John Wiley & Sons, Australia Ltd.

http://www.abc.net.au/4corners/content/2003/20030421_tall_stories/ryder1.htm

There's a cliché in real estate that you make your money when you buy. The profit is realised when you sell, but the decisions you make before you buy provide the future capital gains. The get-rich-fast seminars I attended while researching this book advocated buying well as the key to property investment. For the seminar gurus that means finding desperate or bankrupt vendors who have to sell below market value. For anyone who wants to be an ambulance chaser and obituary reader, those tactics are available. For most people, however, buying well means not paying too much. Paying too much should never happen if people research their market and approach buying with their emotions turned down, their panic button switched off and their scepticism antennae on high alert.

Cardinal Rules

Many people, however, do pay too much. The reason is that they break one or more of these five cardinal rules:

• Don't get caught up in the excitement of auctions, bidding beyond your limits.
• Don't go to seminars and get bewitched by rental guarantees and tax savings.
• Don't neglect your research.
• Don't believe anything the marketing people tell you.
• Don't sign anything until you get independent legal advice.

Paying Too Much at Auction

Beyond the devices agents use to secure and conduct auctions, the problem is that many buyers allow emotion to warp their judgment. They get excited and they get pressured, and they end up securing the property, but at a price beyond their pre-auction limit. They pay a figure above market value or they pay more than they can afford. They suffer from "Inflated Dreams", which results in an inflated price and inflated mortgage payments.

Investment Seminars

I don't know anyone who has bought a car they haven't seen, or a new suit or dress they haven't tried on. So it stands to reason that no one would buy a property they haven't seen. No one could be that careless with their savings, could they? Yes, they could. And they do. They go to seminars run by people marketing real estate in a distant location, somewhere sexy like the Gold Coast or Byron Bay. If they sign up to buy a unit before they leave the seminar, buyers have broken four of the five cardinal rules: they got sucked in by incentives, didn't do any research, believed what they were told by salespeople and didn't get external advice.

They didn't even inspect the thing they were buying. And they became owners of a property with a market value well below what they paid. All the components of the deal - the rental guarantee, the promised free holidays, the cost of bringing the roadshow interstate, the fees paid to middle men and women - all come at a price. A high price. Way above market levels. Even those who go a step further and accept cheap flights to see what they are buying get ripped off because the marketing machine is very polished.  You might wonder why an interstate investor would pay $175,000 for a unit when local people are paying $120,000 in the identical project next door. The answer is: the interstate investor didn't know about the deal next door, or the 200 others down the road. They didn't do any research because the incentives seemed to offer security and there was heavy pressure to sign on the spot.

Rife Since the Nineties

Taking these seminars interstate or overseas became common in the Nineties. Mostly they focused on units and townhouses on the Gold Coast and in the Brisbane-Gold Coast corridor. They've also been used to sell NSW real estate, and more recently in Melbourne. Marketing companies took their products to distant locations where they could find people with adequate money and inadequate knowledge of the target market. Western mining towns were popular victims, because they had lots of high-income workers with surplus money, little experience in investment and no sense of reality about a market 1,000 kilometres away. The Gold Coast's image is built on million-dollar penthouses and beachside units fetching $400,000. Distant buyers have little appreciation that the City of Gold Coast, stretching inland to the hinterland, south to the New South Wales border and north to the outskirts of Brisbane, is awash with cheap units worth less than $100,000. A unit selling for $170,000 appears to be a steal, especially when presented alongside graphs and charts and glossy brochures about tourism statistics, capital growth forecasts and proximity to Surfers Paradise. In reality, as thousands have discovered too late, the "steal" is worth only $120,000 at best.

Properties have typically been over-priced by $50,000 - $122,000 is the biggest mark-up I've heard about - while marketers have earned up to $50,000 a month in commissions and solicitors $1,500 per conveyance, about five times normal rates. While developers sold bad deals to interstate investors who didn't know Gold Coast values, locals who did know got in on the act. Reviving the old days of speculation, investors would buy cheap units in existing buildings and on-sell to distant buyers at outrageous profits. These were disastrous investments created by sellers with no scruples, laws with no teeth and buyers with no idea how shady some people can be. As more and more consumers got burnt, the Queensland Auctioneers and Agents Fidelity Guarantee Fund was peppered with compensation claims. There was criticism of the banks for failing to notify customers when bank valuations showed borrowers were paying too much. The National Australia Bank (NAB) hit back, saying borrowers should do their homework before signing a contract.

The NAB was right in one sense but horribly wrong in another: it's wrong that banks hold valuations paid for by the borrowers, which show that borrowers are paying too much, but don't notify their clients. They simply don't care, as long as they are covered by a borrower's home equity. Indeed, there were claims that overpriced properties were being sold via hard-sell tactics with kickbacks from banks. While the REIQ claimed its members were not involved, there was evidence to the contrary, prompting the LJ Hooker franchise in Surfers Paradise to withdraw from the institute, claiming it was infiltrated by "shonks". Franchisee Kerry Davis was backed by LJ Hooker International managing director, Grahame Cooke, who said in a letter to Fair Trading Minister Judy Spence he was "appalled at what is going on".

Cooke told Spence:

I intend to make a crusade to rid the industry of crooks getting excessive fees for over-priced property and snubbing their noses at authority.

3,000 Duped in One Year

The Office of Fair Trading said investors from outside the area who bought Gold Coast units in 1998 through specialist marketing organisations paid $150 million above local values. Almost 3,000 investors were caught - in one year - paying on average $50,000 too much. Gold Coast valuer Iain Herriot claimed "super sales professionals" exploiting out-of-town buyers comprised 43% of the $1.2 billion Gold Coast unit market in 1998 - $500 million in sales at artificially inflated prices. Herriot said single units were being traded up to four times in six years at inflated prices. Six unit transactions traced by Herriot made a combined profit of $353,000 for the sellers, who bought and sold within two days in one case. The duped buyers were from Victoria, NSW, country Queensland and overseas. Premier Peter Beattie described the promoters as "shysters" but Anthony Chapman of the Federation of Property Developers and Marketers defended his members as "professionals providing customers with a valuable service". He described the processes as providing information, understanding, time-efficiency and a high degree of professionalism. Critics, he said, were miffed about losing market share. Chapman said:

These are not clients wandering up and down the streets of the Gold Coast. They're at home in Adelaide or Perth or Melbourne and Darwin and they're proactively attracted. For the most part this is a market that's untapped.

An Artificial Market

The success of the tactics, aided by the gullibility or common decency of the targeted investors, allowed developers to keep building cheap townhouses and units for which there were no tenants. It created an artificial market where demand was manufactured by:

• Rental guarantees which glossed over the lack of tenant demand.
• "Independent" professionals who lied about unit values, negative-gearing tax benefits and projected profits.
• The targeting of out-of-towners because they were unlikely to know Gold Coast values.
• A facade of professionalism created by well-honed marketing techniques.
• Incentives such as cheap flights and chauffeur-driven service.

Research analyst Alan Midwood attended three seminars and described them as "beautifully scripted pieces of work". The marketers were "very creative" with statistics, including some taken from Midwood's own reports, particularly on capital gains and investment returns. He said:

They are a masterpiece. If it wasn't for the fact that it's often my own figures they are interpreting, I would believe them.

They flash up pages of my reports and put a totally different slant on the information. And yet their slant sounds totally plausible. They manage to sound convincing while they ignore the difference between a gross return and a net return, whereas a net return is about half of the gross return. They produce graphs where the prices keep going up.

A Catalogue of Horror Stories

The horror stories mounted. In August 1999 a firm represented on a State Government committee investigating real estate rorts was accused of being part of the problem. Western Australian couple Paul and Liliana Shenton complained they paid the firm $64,000 too much. The marketing firm had run seminars in Perth and provided $150 return air fares to Brisbane to inspect Gold Coast properties. A financial consultancy explained the wonders of negative gearing and the Perth couple found out too late the consultancy was a $2 company linked directly to the marketing group. Melbourne couple Tammy and Graham Smith received the standard VIP treatment: the marketers shouted them lunch, ferried them around the city and even looked after their kids. The solicitor they were taken to told them:

Look, if someone in my family was looking for an investment opportunity, I'd recommend this company to them.

They signed up to pay $201,500 for a townhouse later valued independently at $170,000. But it seems that after they complained, their deposit was returned and the contract cancelled. The Australian detailed the experience of Adelaide couple John and Wendy Allen who received the classic marketers' pitch and signed up to buy. After a phone call from the marketing company they went to a negative gearing seminar. Two nights later someone from the company knocked on their door in suburban Reynella. That resulted in $99 return air tickets to Queensland where they were met at the airport.

They were taken to a finance brokerage company (secretly owned by the same person who owned the marketing company) which produced a computer model for a $173,000 unit, $185/week rental income, $13,000 in annual tax benefits and projected capital growth of 8%. They asked about a valuation, were told one had been done and left it at that. The reality was different. Similar units were independently valued at $135,000 and capital growth had averaged only 2.5% in the previous five years. But on the day, the Allens didn't know any of that. They succumbed to pressure to buy a townhouse at Merrimac and were taken to the office of a local solicitor who presented them with a contract and took a $1,000 deposit. It all happened in one day. They needed a loan of $186,000 - $173,000 for the townhouse and $13,000 in extra costs including outrageous fees for conveyancing, loan spotters, the lenders' solicitor, searches, valuation and "other" costs. Later the Allens engaged a solicitor to have the contract cancelled.

The Australian Property Institute, a long-time critic of two-tier marketing practices, claimed a new string to the strategy was presenting buyers with "independent" valuations - but these were procured by the marketing group. Pimpama couple Trevor and Amanda Brown sought $73,000 in compensation from the fidelity fund after paying $169,500 for a three-bedroom unit at Elanora in 1997 based on an unsigned valuation provided by the developer. Eventually they were forced to sell for $107,000. Four years after their purchase the Fair Trading Minister wrote to the Browns to advise their claim for $73,000 had been rejected. "During the course of the investigation, no evidence was discovered that might have further assisted your claim," the Minister wrote. Another case reported in 1999 involved a Sydney couple, both middle-aged professionals, who bought a Gold Coast investment unit for $170,000 (plus costs) - and discovered too late that it was valued at just $135,000. Buyer Tim Glover was outraged that the bank was prepared to lend them money to buy a unit when the bank's valuation indicated they were paying $35,000 too much. "What happened to us was disgraceful," Mr Glover said. "It is embarrassing but we want the world to know about it so that other people can avoid the same trap."

Action from the State Government

In March 1999 the Queensland Government staged what it hoped would be a different type of seminar, bringing together aggrieved investors, consumer advocates and the marketers. The conference room was stacked with people who looked and behaved like caricatures of the legendary white shoe brigade of the Eighties boom time. They eulogised the marketers as the economic saviours of the Gold Coast, speaking over the top of elderly women and men who had lost their retirement savings buying their products. It was a relief to get out of the room and breathe some clean air. But the seminar did play a part in producing new laws to curtail these marketing practices and some of the other sins of the real estate industry. I write in detail below about this conference, because it illustrates so many of the evils endemic in Australian real estate.

The 1999 Gold Coast Conference

Consumers, real estate people and government people came from interstate and regional Queensland for the conference and they had to close registrations days before the event.  There were perhaps 400 people in the conference room in Surfers Paradise and it seemed many of them were developers and marketers. But the images many took away related to elderly people who had lost their retirement savings to greedy men and women who preyed on them without remorse. One speaker called the latter the "the mafia of the market". There were stories of accountants, solicitors, financial planners and valuers being in the pockets of the marketers but presented to buyers as independent professionals. There was evidence that the banking industry knew what went on but continued to lend on suspect property deals. There were speeches that showed governments and their regulatory bodies were several steps behind the marketeers.

There were Real Estate Institute representatives who expressed concern for the image of their industry - but none for the people who got hurt - and who pushed the party line that everything would be all right as long as buyers dealt only with institute members. There were developers - beneficiaries of these scams - who praised the marketers and claimed to be motivated by a desire to create jobs. But the people who made the most impact were the ordinary citizens who described how they had lost their savings, feeling foolish for having been duped but wondering how, in a country like ours, so many people could tell so many lies and get away with it. The legislators and regulators at the conference seemed at a loss to provide a response - other than to lecture people on the need for greater care.

The Human Cost of an Unfair Deal

Deal Fair Trading Minister Judy Spence spoke about the spread of sophisticated marketing techniques, the pressure on citizens to be financially independent in retirement, the lure of short-term gain and the human cost of an unfair deal. She had received letters from people who had lost their retirement nest-egg or their children's inheritance. Existing state laws looked like "an historical artefact" in the face of these events, she said, laws that "may as well have been designed for feudal England"and now being re-written. "I want to bring in a regime that has consumer protection as its pinnacle," she said.Don McKenzie, the chief executive officer of the REIQ, said the Institute was concerned that the activities of some sections of the industry were damaging its image. He advised some basic steps for consumers:

• Know who you are dealing with
• Ask them what licences they hold
• Ask the marketing company how long they have been in business
• Ask if they have assets or whether they are a $2 company
• Ask whether they have professional indemnity insurance
• Get independent advice before signing a contract.

Mr McKenzie also advised buyers to be very clear about the reasons for buying real estate.

If you want to negatively gear, you should consult an accountant or tax planner. Never buy a property without seeing it first. You would be astounded how many properties are bought in Queensland sight-unseen.

Beware of anything offering inducements. There's rarely anything resembling a free lunch. Ask for a comparative market analysis. Make sure sales in complexes other than the one you're considering are included in the list of sales. You might consider appointing a valuer. Be careful of the contract form that you sign. Seek a solicitor's advice before signing anything.

Power Imbalance in the Negotiation

Neil Lawson, Commissioner for Consumer Affairs, said it was not enough to say that the law of the jungle prevailed and the buyers had to look after themselves. Consumers quite reasonably expected to be dealt with fairly. He stressed the difference in "power and knowledge" in a typical transaction. He advocated consumer education and a cooling-off period, which took away the incentive for the market "to stretch the truth a little". Barbara McInnes, Regional Education Officer for the Office of Fair Trading (OFT), said typical victims owned their home and were financially secure without being wealthy. Their experience in real estate was limited to buying and selling the family home. Some had experience in the sharemarket. Most considered themselves well-read, intelligent and articulate people. They were people who had worked hard and were planning for their retirement. They were not sophisticated property speculators. Some had been forced to delay their retirement, sell the family home or declare themselves bankrupt.

Lenders Turn a Blind Eye

Maurice Unwin, president of the Finance Brokers Association of Australia, said the marketers were only part of the problem: financial planners, accountants, investment advisers, solicitors, mortgage brokers, credit unions, banks and other lenders, valuers and the buyers were part of the equation."The lending community is part of this sorry affair," said Unwin. "If lenders were more responsible, they could solve the problem."  Banks engaged registered valuers to appraise a property before they lent on it, and while the buyers paid for that valuer, the banks usually did not allow the buyers to see it. Unwin said:

They should be obliged to advise the borrower if the valuation is at odds with the price. Lenders do know what's going on in the marketplace but in their desire for market share, they have adopted less than desirable practices. They turn a blind eye.

But, in the end, the buyer had to take more care. "Can you totally legislate to protect people from themselves?" Unwin said. "You have to ask questions."

Without Marketers, There Would be no Market

Valuer Ian Herriot loudly deplored the "two-tiered" marketing practices, which he said had first appeared on the Gold Coast in 1992.  He displayed a graph showing the difference between fair market prices and those resulting from two-tiered marketing, which had become a major component of total Gold Coast sales. "Without the two-tiered market, there is no market on the Gold Coast," he said. "We are dealing with a fairly hefty animal." Developers in the audience agreed.  Alan Ducret, regional director of the ACCC, said the problems were becoming endemic on the Gold Coast and the usual kind of law enforcement - mop-up operations after the damage has happened - would not solve the problem. "What we need is a legislative framework that protects consumers - so that the mop-up operations aren't necessary," he said.

Claims of Success Stories

Anthony Chapman, representing the people everyone (except the developers) was complaining about, claimed "the vast majority" of his members were reputable. "But there certainly has been a wayward element," he said. He tried to divert some of the blame to the valuation profession. He spoke about inconsistency in valuations, commenting: "It seems we have a two-tier valuation system." Chapman's angle on how the process works went like this:

Initial contact is made by phone. They are invited to an investment seminar on property investment and negative gearing. The seminar describes the benefits. There's an offer for a personal consultation, usually in the client's home or workplace. Questions are answered and literature is left for the client to read. They are given the option of purchasing property. The clients then travel to the location, when financing and tax strategies are discussed. Specific properties are offered. The opportunity to say no has always existed.

Barrie Adams, regional commissioner for the ASIC, said the Commission was concerned about real estate agents providing financial advice in the form of negative gearing analyses. There were moves to make an investment adviser's licence mandatory. Adams said:

It's about better disclosure in marketing material. That's a problem that's constantly drawn to our attention. Buyers should go beyond the glossy brochures and find out more about who is behind them. It gives me no joy every Monday morning when I go into my office and find examples where people have not sought appropriate professional advice before giving away their hard-earned money.

We are investigating a case where there are 67 charges against an individual. Most people involved in that scheme really didn't know who they were dealing with.

Suicides and Bankruptcies

Mike Neal, from the White Knights consumer protection organisation, said he could fill five rooms with victims and was currently involved in a $40 million law suit. He spoke about people "pushed to take their own lives" and others "forced to sell their own homes".Investor Trevor Powell said he bought a Gold Coast unit for $155,000 three years earlier, after attending a marketing seminar in Brisbane. "The bank approved the loan based on the equity in our current home," he said. "They were not interested in the value of the investment property." Now his unit was worth only $125,000.Bob Rigby described himself as a burnt consumer. He said:

Everything you told me to do, I did. Used a licensed real estate agent. I still got burnt. I got robbed. I bought a unit off-the-plan. I got told lies. It was all in black and white. None of it was true. Lies about body corporate fees, future income. I am not the only one who got burnt.

David Wheatley said he had attended investment seminars where professional advisers were presented as independent. He said:

These people are anything but independent. You must not get caught up by the euphoria of a closed room. You must get independent advice before signing.

Valuer Herriot said marketers commonly commissioned valuations from valuers who were not members of the API - paid for by the marketeer, led and directed by the marketeer, but presented to buyers as independent valuations.

Pensioners Lose Their Superannuation Money

An elderly woman in the audience, Rita Malone, said she represented pensioners who had been ripped off. "The prospectus was the greatest work of fiction since Gone With The Wind," she said.  They had bought seven years earlier, paying $74,000 each for their units.

They can't get $34,000 for them today. They lost up to $43,000 of their superannuation money. They can't make it up because they are too old. They are approaching 70. How can I get them some compensation?

Her friends interstate now regarded Queenslanders as "a mob of robbers".

The Marketers, For Some, a Godsend

But there were plenty in the crowd who backed the marketers. Builder Grant Hudson said:

I take my hat off to them. There's no market without them in the investment market. It's time we started talking this place up. It's a billion dollar industry, which goes right down to the smoko girl earning a living.

Another audience member, Alan Black, said:

The marketers have been a godsend to the developers. If they weren't allowed to operate, there would be no market here. And the jobless queues would be a lot longer.

Those views were described as "pure and utter codswallop" by Karl Sebastian, who said he sold property through a Gold Coast real estate office. He commented:

We now have enormous numbers of one-bedroom dog boxes that are the slums of the future, absolutely unfit to live in. They are being built purely for the benefit of the marketers. They are the mafia of the market. That sort of marketing has destroyed the future because the consumers no longer trust us.

It's a National Issue

Minister Judy Spence, in closing the conference, noted that some people had been in tears hearing some of the situations described. She said:

This crosses state borders, it's not just a Queensland issue or a Gold Coast issue. People who have been hurt are coming from all over Australia. We have to broaden this beyond Queensland. Every state has to look at how it is educating its consumers to make wise property decisions.

The Impact on the Market

One of the legacies of these practices is the impact on the property market in the target areas. Logan City, the municipality which covers the Gold Coast-Brisbane corridor, is a basket case thanks to the marketers. Logan, Australia's third-ranked growth area since 1976, was targeted by developers in the mid Nineties, resulting in an oversupply of units and townhouses as the population growth fell away after 1994. Then the marketers came in, using their slippery methods to sell the surplus product. Buyers not only paid too much but found there were no tenants and had to sell at crippling losses. Logan's median unit price, around $110,000 in 1995, fell steadily to $70,000 in 2000 and the area is widely regarded as the worst place to invest in South-East Queensland.

ASIC Seeks Action

Partly because of the marketeering scams, the ASIC reviewed regulations governing real estate agents and marketers, especially their right to give financial advice on matters such as negative gearing. Financial planners and investment advisers are required to be qualified and licensed to give advice and must disclose any commissions they receive for recommending a particular investment. Real estate agents and marketers have not been subject to these rules. The ASIC concluded they should be, and recommended this to the Federal Government. It expressed particular concern about the activities of unlicensed marketers. The Financial Planning Association also urged government to introduce uniform national licensing for agents who offered investment advice on property, while the Real Estate Institutes claimed - despite all the evidence to the contrary - that their ethical members were not to blame and the problem was confined to unlicensed marketers. The result was the Financial Services Reform Bill which begins in March 2002. However, because agents' activities are a State Government responsibility, agents have escaped the scope of these new laws. The Financial Planning Association is outraged. Public Policy Manager Con Hristodoulidis told me property was just another financial product option for consumers; those promoting it should be regulated like other financial advisers and be subject to the same competency standards and disclosure requirements on commissions. He said:

There's a requirement on us to match client needs with appropriate products but real estate agents don't have to meet these standards. There are various consumer safeguards under the financial planning regime which real estate marketers escape. The ASIC did a report on them but it's on a shelf somewhere gathering dust.

Meanwhile, Queensland's new real estate laws came into being on 1 July 2001, with measures designed to curtail the marketers. The feedback I've been getting since then indicates that the marketeers have carried on regardless. Hooker chief Grahame Cooke, while a declared opponent of the marketeers' tactics, believes the State Government has "over-reacted and gone overboard" because laws designed to nobble marketeers have hampered the work of real estate agents.

Besides, people should get a valuation. People have to do their homework. I get very angry at people who cry wolf after greedily going into something. People are being sucked in because they don't check on things. All the legislation in the world won't stop people being greedy. How do you stop people burning themselves? And the guilty still walk away.

They're Still at it

Not much has changed. The new Property Agents and Motor Dealers Act is a step forward but the laws are only as strong as the policing of them. Recent case studies involving investors in Victoria and Western Australia demonstrate that the marketers are still active. Neil Penhall of Perth received a phone call at home inviting him to a negative gearing seminar. Two days after the seminar a rep visited his home and delivered discounted air tickets to the Gold Coast to inspect properties with Consolidated Property Investments and Stamford Lyon International Realtors. But this was one case where the investor did some research of his own. He pinpointed areas of interest to him, assuming agents would be happy to sell him any property he fancied. He was surprised at the lack of response from the Gold Coast office to his request to be shown properties in these areas; they seemed to have a different agenda. Neil smelt a rat and decided it was best not to proceed. He says:

After a weekend of phone calls, the marketeers have finally given up on trying to get me on the Brisbane flight - stubborn individuals they were indeed.

A couple of things that do still concern me, however. The agents concerned are members of the REIQ. Does this body condone the unethical behaviour of these people? I would have thought an industry association is there to weed out these pirates. Also, the involvement of allegedly professional people like lawyers in these schemes is disconcerting. I guess a lot of them deserve their reputations as leeches.

Robyn Christiansen, an accountant from Hampton in Melbourne, paid $287,000 for a Gold Coast unit and later discovered it had been traded only months earlier for just $165,000. Fortunately, she was saved by the five-day cooling-off period under the new state laws. But rather than feeling curtailed by the new Act, the marketeers have found a way to turn it to their advantage. They told her the new laws meant investors were now totally safe and couldn't be ripped off. They also told her financiers would not lend on over-priced properties, providing another layer of protection. Both claims are untrue. She says:

We were trying to be so careful. But they are very clever. They manipulate you very subtly. Their website talks about integrity and honesty but they obviously have no morals.

Christiansen and her partner had received 8 to 10 phone calls from marketeers over two years before deciding in mid-2001 to accept an invitation to a negative gearing seminar. She says two-thirds of the 30 people at that seminar agreed to go to the next stage. That was followed by a two-hour consultation at their home, detailing how much tax they could save with a negatively-geared property. "We were a good target because we have a lot of equity in our house," she says. "They must have been thinking: these people are ripe for the picking."  They were offered flights to Brisbane and accommodation on the Gold Coast for $100 each, with limousine service from the airport and lunch at Sanctuary Cove. They were taken to a financial planner who provided computer models of typical investment, which suggested a $200,000 unit would cost them just $25/week after the tax benefits. The models were based on a 7% capital growth rate, although the marketeers believed 10% was more likely. "They were making out that they were being conservative," Robyn said. In fact, values have been going backwards in many areas of the Gold Coast in recent years.

The salesperson from Stamford Lyon suggested a new project at Parkwood, a typical brick and tile suburb 10km from the nearest beach. This 20-unit project, "Chateau Europa", had lush tropical landscaping, impressive facilities and the four-bedroom units at $287,000 seemed good value compared with others they'd seen. They were told that properties such as this were rarely on the market and they would probably get $300/week in rent for it (in fact, rents in the area are $200-$250). After crunching further numbers with the financial planner they were told they needed a solicitor registered in Queensland to handle the paperwork. It turned out that the recommended solicitor, the vendors' solicitor and the financiers recommended by the marketeers were all in the same office building. They flew back to Melbourne later the same day. But within the five-day cooling-off period Robyn did some research and found similar properties were selling for $175,000. She sought an independent valuation and, despite resistance from the marketeers, this revealed the unit had been sold four months earlier for $165,000. She says:

I didn't sleep much that week. I couldn't believe the enormity of the rip-off. And I was concerned that the solicitor we were directed to wouldn't follow our instructions to rescind the contract. It happened, but only after we made several phone calls to them.

We would like other people to be warned of this practice. The government is encouraging people to save for their retirement and this is what these marketeers push.

Solicitor Boyd Nelson, whose business spans the NSW- Queensland border, says these marketing practices are still blighting Gold Coast real estate and many different professions are benefiting, particularly finance brokers. He said:

A lot of the brokers' referrals come down to them from the marketeers. As they get a clientele, a large number of people on their mortgages, a trailing commission comes back to their brokering firm.

And the next rung of their marketing is where their clients have got their mortgage down to a manageable amount and they then talk them into buying an investment property. The ones who refer legal work to me, they're disappointed when I won't push people over the line into these things. A lot of those deals are very tight and clients become apprehensive.

I am disappointing the people referring me the work. That's why I am not doing any more work for them. In those deals, fees of $900 to $1,500 go to the developers' solicitors and that's a very significant mark-up. Their loyalty is being bought.

Alan Midwood tells of a recent example of a mature couple from Townsville, both university-educated government employees, who were so impressed by the presentation and the salesman they shelled out $200,000 for a unit. When Midwood discovered they'd paid $50,000 too much, the buyers could not accept they had been duped by "this nice young man".

He was their new best friend. These marketers are very polished. They are terribly convincing people. They're well-groomed, well-presented. Plausible. Open. They employ excellent body language. It's a very soft touch, friendly approach.

Midwood said the practices were still happening on the Gold Coast but to a lesser extent, commenting:

They pulled their horns in a bit. There are a lot of unemployed marketers on the Gold Coast at the moment all trying to find a way to do it more honestly.

Broadcaster Russell Lea claimed on Melbourne radio station 3AW in March 2001 that "the property floggers from Queensland" remained active in Victoria:

There's page after page of advertisements in our Sunday papers for property floggers and it's all Brisbane and the Gold Coast. They are suckering people like nobody's business. I would have thought no one would touch Queensland property, even the biggest fool in the world wouldn't touch it.

Melbourne financial planner Malcolm Bell of Bell Partnership, who also appears on The Money Program on 3AW, told me about a client who bought on the Gold Coast and was charged a $7,500 fee by the marketeers to arrange a loan through an associated finance company. Bell contacted the marketeers and forced them to drop the fee.  Another client, a 63-year-old on a disability pension of $23,000 a year, was tempted by a negative gearing seminar and a free trip to Queensland to buy a unit for $250,000 off-the-plan. The negative gearing models he was shown by the marketeers assumed he was in the highest tax bracket. "We phoned the marketeers and threatened to take it to the police," Bell said. "They backed down and let him out of the contract."Bell says he has half a dozen clients sitting on Queensland properties worth less than they paid eight or ten years ago, some of them unable to find tenants.  "They go in with the best of intentions, thinking they are doing the right thing," Bell says. "Unfortunately, clients don't take my advice against buying such properties."

NSW Targeted by Marketers

By 2001 the activities of unlicensed property marketers were becoming more frequent in NSW.

REINSW president John Hill said they could make buying real estate a nightmare for buyers. Once again buyers were being duped into paying above market value for property - with unsustainable rental guarantees as inducement - and later selling at substantial losses. Hill says:

It's an almost bizarre phenomenon. It doesn't matter how much publicity there is for these people, people are flocking to these seminars and buying a heap of over-priced property.

People will shop around all Saturday afternoon to save $5 on a toaster but they'll buy a $300,000 home unit without checking anything. In many cases, the fees the intermediaries get in these cases are $20,000 to $25,000 per unit.

It upsets us. There's a loss of business for agents but more importantly it'll poison a generation of people against real estate. They are much slicker in their presentation and we probably have a lot to learn from them.

The Final Word

It's easy to see how people get duped in these situations. It's an uneven contest.  On one side you have the developer of the complex, who is represented by marketers, solicitors, accountants, valuers and many others in putting a glossy facade on bad deals.  On the other side you have an individual or a couple with little or no experience with investment property, the sort of people who work hard and believe most people are honest. These people are represented by no one but themselves. They are easy prey to the unscrupulous backed by money. The best advice is to get independent advice. In particular, get independent advice from a lawyer who is not associated with the people marketing the product you are buying. Getting an independent valuation is also worthwhile. Spending a few hundred dollars can prevent a loss of $50,000 - but, curiously, most investors baulk at the idea. As Midwood says:

We frequently get inquiries over the phone from investors wanting information. I tell them an annual subscription to our quarterly reports costs $187 and they say: I can't afford that! And these are people planning to invest $200,000 in a unit on the Gold Coast.

Real estate educator and author Neil Jenman says:

I cannot believe that in spite of all the publicity that consumers are still getting caught. And I am stunned that there are human beings who can so blatantly rip off consumers. What about their conscience? They are destroying lives. It makes me very angry.

Jenman says he has helped people escape some of these dreadful real estate deals by approaching the "others" involved - the solicitors, the financiers and the valuers.

These people do not want to be seen as being mixed up with shonks. They are more easily embarrassed. And so I have the consumers go after them with the 'how could you do this to me?' line. It has never failed.