Last Sunday night?s finale of Channel Nine?s The Block was a prime-time portrayal of a property crash. Talk about reality television ? three of the four properties didn?t reach their reserve.
The only thing that saved the show was the young bloke proposing to his girlfriend, whose tears of joy transformed into a tantrum not ten minutes later when their property was passed in. (Mark that down as your first lesson, son.)
?What a bloody waste of time?, said one of the deflated contestants. But it could have been worse. It could have been their money. If they?d put their heads on the block, they?d probably be bankrupt:
Average purchase price including stamp duty: $950,000 Major renovations: stumping, plumbing, rewiring: $300,000 Cosmetic renovations: $100,000 Average total cost per house: $1,350,000
Leading independent property valuer Louis Christopher claims that the couples would each have lost up to $500,000 ? and that figure doesn?t include their three months of labour.
It couldn?t have been a worse advertisement for the property pushers who continually talk up the most overvalued property market in the world in the mass media.
After all, they had a pretty good marketing campaign ? the agents had 30,000 people through their open for inspection, and 3.4 million people turned up for the auction (okay so there were a few sticky beaks), and they still couldn?t snag a decent price.
So what happened? Well, while the contestants learned how to build a bathroom, they failed to show them the tricks and tools that developers use every day to push their dud properties on to poor old punters. Hang on a minute ? that sounds like a rolled gold, follow-up series: The Block, Dodgy Developers Special. Here are five tricks of the trade:
1. Heads we win, tails you lose One of the most common tricks property developers use to beat buyers is the so-called ?sunset clause?. Consumer advocate Neil Jenman calls it ?heads we win, tails you lose?.
If the property drops in value in the time it takes to build, the developer will fight tooth and nail to make sure you settle for the agreed price. Yet if the value ends up increasing they?ll usually find a way to rescind the contract, then sell it to someone else for a higher price.
2. Manipulate the market Last weekend I found myself having a tipple at Melbourne?s Docklands. Bored, I decided to go to an open-for-inspection for a two-bedder in one of their towers of terror, priced at $1.4 million. Seemed a bit high to me. Later that day I spoke to a real estate mate who said: ?You probably visited a flat the developer still owns. They advertise these apartments at inflated prices ? which they know they?ll never get ? because it serves to create the perception of value to potential buyers.?
3. Cook the contract So what happens when the developer wants to sell one of these apartments? Well, they don?t drop their prices ? that would show up in the real estate figures and pull the price of the rest of their unsold apartments down with them ? but they do discount. One trick is to include the cost of stamp duty in the final sales price, another is to throw in televisions, lounge settings, even free cars ? anything to entice buyers to sign on the dotted line without the developer having to officially reduce the quoted sales price.
4. Offer a rental guarantee The quickest way to work out whether someone has been sold a dud development is to ask them whether they received a ?rental guarantee? when they bought. These are generally properties that are flogged to ?mum and dad? investors, who can be hoodwinked by flashy sales-speak (over the long term, says the salesman, my nose doubles every seven to ten years) and tall tales of tax minimisation. Why would anyone need to offer a rental guarantee on a brand spanking new pad? Aren?t we in a rental crisis? Usually it?s so they can artificially inflate the return: ?6% return ? guaranteed!? However, the rental guarantee is priced into the final sale price (and in most cases that?s just the start of the loading). Still, it gives the developers a few years to sell out of the units and move on before the mums and dads work out what happened.
5. Fudge the figures A close barometer of the health of the property market is the weekend clearance rates (which have been falling in many parts of the country). So when all else fails the final trick the real estate industry plays is to fudge these figures. When an auction fails to sell and the property is passed in, some real estate agents choose not to report it to the Real Estate Institute, so that it won?t pull down the weekly clearance figures. The Real Estate Institute ? a membership body made up of commission-generating real estate agents ? in turn acts like the auctions miraculously never existed. ?We believe that, week in week out, the Real Estate Institute is missing about 20 per cent of the auctions out there ? so what that really means is that they?re overstating the property clearance rate by up to 20 per cent?, says valuer Louis Christopher. On Location So where could we send our Block contestants to learn all they can on the job?
South East Queensland and the Gold Coast are prime hunting grounds for desperate, dodgy developers. Pick up any paper and you?ll see developers forking out $30,000 on a full-page ad that reads ?Hurry ? almost sold!?
