Melaleuca Media
Some simple answers to property scams

An analysis of what the Qld government should have done on endless property marketing scams. What they did instead was in the wholly inadequate tradition of not wanting to offend any powerful interest. Phil Dickie investigated two tier real estate markets for the Queensland government in 1999.

Underwater acreage, beachfront lots 400 kilometres inland, and the persistent claim that you can negative gear your way to wealth with an overpriced townhouse in the middle of nowhere. There are plenty more bizarre examples of why the Sunshine State has acquired such a national, even international, reputation as the Scam State.

Full marks to Hedley Thomas for his feature Buyer Beware (Courier-Mail, Saturday) for demonstrating that the perennial ongoing Queensland real estate marketing rort continues. Only a very slight modification to marketing practice seems to have been required to get around the legislation the Beattie government put such a mighty effort into.

The basic dimensions of the current scam have stayed constant for about a decade now – potential buyers are herded into “investment” seminars and hyped into believing that the Australian taxpayer will finance them into wealth through the magic mechanism of negative gearing. Those so convinced are then often shouted a trip to be whizzed past some property and then given every professional assistance to finance, do the legals and sign on the dotted line.

What is never stressed is that investment never, never works unless the investment is purchased at a good price. The basic flaw in the system was that the marketeer’s greed and largesse meant that the property never, ever sold at anything like a fair, decent or market price.

Two years ago I was engaged to investigate the scam for the State government and used the Gold Coast as a case study. Those who had bought marketed property 10 years previously had on average done about a quarter of their money. Those who had bought 4 years previously had on average done about a quarter of their money.

The big question is whether Queensland governments are seriously willing or able to do anything about it. The answer, unfortunately, is probably not.

Pressure for change mainly comes from the victims, who in political terms can usually be safely disregarded and usually are – often they live interstate and it is only their life savings that have come to Queensland.

There are, it must be said, also some developers, some real estate agents, and even some lawyers who raise the issue that having shonks trash the business and professional ethos, trash the State reputation and all too often trash any local scenic amenity it might have is not good for business and the State in the longer term. And there are some public servants who take the fairly unusual approach that if the system’s broke then perhaps we should look for a way of fixing it.

But the Tim Dwyers of the community can niggle the government all they like through letters and newspaper columns. Concerned public servants can be put on the backburner or kept in the back office and usually are. Inertia, and the fear of upsetting the big developers (and often party donors), the professional associations and the knock it up industry tends to rule on George Street.

As a consultant brought in to assist I was conscious of – let me pick my words very carefully here – some pressure for the issue not to be further aired in any highly public or unduly embarrassing way.

The consultant therefore felt impelled to recommend an investigation and a report to the parliament. A legal expert was engaged to look at legal options. There was extensive if not effective consultation.

Sooner or later the Beattie government might discover that the usual careful balancing act it conducts between the various interest groups on issues only occasionally and accidentally comes up with a right answer as opposed to a politically palatable answer.

It is all about wearing short term pain – the fury of the industry – for the long term gain – a state with the reputation as a good rather than a dangerous place to do business.

First, the main victims of marketing abuses are not the fleeced investors. It is us. There is that matter of reputation already raised. It has an economic value which the government would do well to try to cost into the equation.

More directly, the marketing orgy has produced a lot of densely populated former paddocks out the back of the Gold Coast and between there and Brisbane. Come the end of the rent subsidy that is often part of the marketing deal, no-one much wants to occupy this vast surplus of investment pipe-dreams.

Welcome to the welfare ghettoes of tomorrow. And guess who will foot the bill for servicing, policing and maintaining this madness. You guessed it.

And third, the marketing industry has managed to unhitch the normal economic parameters of demand, supply and price. At some point, reality will intrude, and the result will be a depressed market for a very long time. Many in industry and many innocent property owners will suffer a great deal of financial loss and emotional turmoil.

Some significant reforms did get considered briefly before being consigned to a too hard or too offensive basket.

The first and most important is to build in a safeguard against the perennial government tendency to regulate business and protect consumers, public health and the environment with legislation full of loopholes which is then not enforced.

The safeguard is fairly simple, and is becoming increasingly common in more advanced democracies, such as New South Wales and the Commonwealth. It is already hidden carefully away in some State legislation and can be found in ALP policy.

Technically called third party standing, all it means is giving the community the right to approach the courts on their own or in the public interest to seek to have the law enforced (or at least get the process started). Government doesn’t like this proposal to end its monopoly on regulatory enforcement or non-enforcement – actions under these provisions tend to show up their legislative or other inadequacies.

Second, contracts should be able to be voided where there has been significant misrepresentation of properties, their values or the business relationships between those flogging them. The onus of showing that this was not the case should be on the property marketeer.

The marketing industry will scream about this – but it will make them a whole lot more careful about their claims.

I did finish my report with a suggestion to the government that they should put resources into looking for the next scam rather than reacting to the last one. But this is probably expecting a bit much.

Two tier real estate markets in Queensland - The report tabled in State in July 1999.