Melaleuca Media
Two tier real estate markets in Queensland

Phil Dickie conducted an investigation into real estate marketing abuses on the Gold Coast on behalf of Queensland's Department of Fair Trading. The report of the investigation and another report of a working party of stakeholders also written by Phil Dickie, were tabled in the Queensland Parliament by the Minister for Fair Trading in July 1999.

Report for the Qld Govt of an investigation into real estate marketing abuses. This report, commissioned by the Queensland Department of Fair Trading, was tabled in the Queensland Parliament in July 1999.

Executive Summary

Two tier markets can be defined as those where the one property can at the same time have two wildly divergent values, depending on how and to whom property is sold. What are referred to as two tier markets have a high price tier which is achieved when specialist organisations and techniques are used to market properties to persons normally residing somewhere remote from the market.

The argument that valuers are responsible for the fiction of a two tier market is disproved by the so called third tier market – where investors who dispose of their properties must do so at a loss in the normal market while marketing organisations retain the ability to remarket those same properties at the high second tier of pricing.

Central to the marketing techniques are the recruitment of a large pool of potential purchasers, an emphasis on negative gearing as the key to successful property investment, the provision of all facilities and services for rapidly concluding the purchase process, and closeting of potential purchasers from independent sources of local knowledge and professional advice.

Marketers claim that they provide valuable services to the consumer and also to the development industry and local economies. The alternative view is that negative gearing marketing organisations and techniques systematically and cynically exploit vulnerable and naďve consumers and are doing or will do great damage to the reputable real estate industry and local economies.

Puff, a term in use within the industry, may be defined as the difference between marketed prices and the fair market value of properties. In 1998, the amount of puff in the Gold Coast market was estimated as averaging between $40,000 and $54,000 per property and $110-$150 million overall. This is roughly equivalent to the gross return of the organisations employing marketing techniques and also to the immediate capital loss sustained by investors.

In what has collectively become known as “the foodchain” a range of professionals performing services within the marketing system may be systematically ignoring professional obligations and overcharging for their services. There are concerns also in relation to undisclosed payments and secret commissions between parties to marketing transactions and third parties

The existence of two widely separated price tiers introduces a fundamental flaw into the projections of capital appreciation shown to potential purchasers by marketing organisations which means that very few investors can expect a positive growth in the value of their investment even over extended time periods.

The success of negative gearing marketing techniques has meant that much new development product is being built specifically for this market. This may build significant distortions into real estate markets, worsening boom-bust cycles and increasing recovery periods. There is a need also for more research into the potential social consequences of excess construction of rental housing stock, often in unsuitable locations.

This report

This report was prepared as a result of a study of two tier property marketing conducted by an independent consultant, Mr Phil Dickie, for the Queensland Office of Fair Trading. It draws on and was prepared in conjunction with research into two tier markets which involved:

A review of departmental files and interviews with participants in two tier markets, property buyers and others with specialist expertise
Reviews and analysis of property sales data
Submissions to and the proceedings of a stakeholder working party set up to examine consumer concerns associated with property marketing and possible strategies to deal with them
A report by legal consultant Professor Bill Duncan on State legislative options for regulation of property marketeering activities.

This report gives an overview of the property marketing industry, using the Gold Coast as the principal area of study. It was not the purpose of the study, and nor was it possible given the time and resources available, to fully resolve many of the allegations made during the course of the investigation.

The consultant acknowledges the assistance of property purchasers, staff of the Office of Fair Trading and the Department of Natural Resources, individual and institutional members of the Working Party on Property Marketing in Queensland, Mr Rex Davis and Dr Scott Baum of the Australian Housing and Urban Research Institute and Mr Bruce Moon of the School of Planning, Landscape Architecture and Surveying at the Queensland University of Technology.

Views expressed are not necessarily those of the Office of Fair Trading.